Definition ∞ Market Liquidity Evaporation refers to a rapid and severe decline in the ease with which an asset can be bought or sold without significantly affecting its price. This condition manifests as wide bid-ask spreads and thin order books. It indicates a substantial reduction in active market participants and available trading capital. Such an event can lead to heightened price volatility and inefficient markets.
Context ∞ Market liquidity evaporation often occurs during periods of extreme market stress, uncertainty, or regulatory shifts. Its presence can amplify price movements and make it difficult for large orders to be executed without considerable slippage. Monitoring liquidity levels is crucial for assessing market health and potential risks for digital assets.
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