Definition ∞ Liquidity imbalance occurs when there is a significant disparity between buying and selling pressure for a digital asset in a market. This situation arises when the available volume of buy orders does not match the volume of sell orders, or vice versa, at prevailing prices. It leads to increased price volatility and can result in substantial price movements with relatively small trades. Such an imbalance indicates a market lacking sufficient depth to absorb large transactions without significant price impact.
Context ∞ Liquidity imbalance is a frequent analytical point in cryptocurrency market reports, especially during periods of high volatility or sudden market shifts. News articles often attribute rapid price drops or surges to a pronounced liquidity imbalance, particularly in smaller cap digital assets or during panic selling events. Traders and analysts closely monitor liquidity metrics to assess market stability and potential future price action.
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