Low liquidity risk refers to the potential difficulty or inability to buy or sell a digital asset quickly without significantly affecting its market price. This risk is higher in markets with shallow order books or limited trading activity. Assets with low liquidity can experience large price swings from relatively small trades.
Context
Investors in less established cryptocurrencies frequently encounter low liquidity risk, which can amplify price volatility and complicate large-scale trading operations. News often highlights this risk when discussing smaller altcoins or newly launched tokens. Market makers and decentralized liquidity pools aim to mitigate this issue by providing deeper order books and consistent trading pairs.
Low-liquidity perpetual markets remain highly susceptible to whale-orchestrated price manipulation, transferring millions in bad debt to liquidity providers.
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