Low Liquidity Asset

Definition ∞ A low liquidity asset is a digital asset that cannot be quickly bought or sold in the market without significantly affecting its price. This condition arises when there are insufficient buyers or sellers, or when trading volumes are consistently low. Such assets often exhibit wider bid-ask spreads and greater price volatility compared to highly liquid assets. Trading low liquidity assets presents higher risk due to the difficulty of entering or exiting positions efficiently.
Context ∞ Crypto news often highlights low liquidity assets in discussions about market efficiency, risk management, and the characteristics of emerging tokens. Reports may warn investors about the challenges associated with illiquid markets, including price manipulation and slippage. A critical future development involves the growth of decentralized exchanges and automated market makers to potentially improve liquidity for a wider range of digital assets, reducing market fragmentation and enhancing price discovery.