Definition ∞ Liquidity tightening describes a market condition where the availability of capital for trading or investment decreases, making it harder to buy or sell assets without significantly impacting their price. This typically results from central bank actions, increased risk aversion, or reduced market participation. It signals a reduction in market fluidity and ease of transactions.
Context ∞ In digital asset markets, liquidity tightening can lead to increased volatility and price declines, as fewer buyers are present to absorb selling pressure. This condition often follows macroeconomic shifts, such as interest rate hikes by central banks, or regulatory actions that reduce capital flows into crypto. News reports on liquidity tightening are crucial for assessing market health and potential price movements.
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