Definition ∞ Liquidity rotation describes the shift of capital between different assets or sectors within the cryptocurrency market. This phenomenon occurs when investors reallocate their holdings from one digital asset or market segment to another, often in pursuit of higher returns or reduced risk. For instance, capital might move from large-cap cryptocurrencies to altcoins, or from speculative assets to stablecoins during periods of market uncertainty.
Context ∞ The current state of liquidity rotation often reflects changing investor sentiment regarding specific narratives, technological advancements, or macroeconomic shifts affecting various digital asset categories. Observing these capital movements provides insights into which market segments are gaining or losing favor among participants.
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