Definition ∞ Liquidity stress describes a market condition where there is a significant reduction in the availability of assets for trading or lending within a financial system. In cryptocurrency markets, this means a lack of sufficient buyers or sellers to execute transactions efficiently, leading to wider bid-ask spreads and increased price volatility. Such stress can hinder market functioning and impact asset valuations.
Context ∞ Periods of liquidity stress are closely monitored in digital asset markets as they can signal underlying instability or a loss of confidence. These conditions often precede or accompany significant price movements, making them a critical indicator for market participants. Addressing liquidity stress involves fostering deeper markets and ensuring robust infrastructure to handle high trading volumes.
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