Definition ∞ Liquidity Impact describes the effect that a large transaction or series of transactions has on the price of an asset due to changes in its availability for trading. Significant buying or selling activity can deplete available supply or demand, leading to price volatility. This phenomenon is particularly relevant in markets with lower trading volumes or limited order depth.
Context ∞ The analysis of Liquidity Impact is a constant consideration in cryptocurrency markets, especially for smaller-cap assets or during periods of heightened volatility. Discussions often focus on how large whale movements, exchange order book dynamics, and market maker strategies influence price stability. Understanding the potential liquidity impact is crucial for risk management and for identifying opportunities arising from supply and demand imbalances.
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