Token Illiquidity

Definition ∞ Token Illiquidity describes a market condition where a digital asset cannot be easily bought or sold without significantly impacting its price due to a lack of willing buyers or sellers. This state is characterized by wide bid-ask spreads, low trading volume, and difficulty in executing large orders efficiently. Token illiquidity can lead to increased price volatility and make it challenging for holders to exit positions without incurring substantial losses. It represents a scarcity of market participants for a given asset.
Context ∞ Token illiquidity is a frequent concern in news reports discussing nascent digital assets, small-cap cryptocurrencies, or projects with limited market depth. Analysts often warn investors about the risks associated with illiquid tokens, particularly during market downturns. Regulatory bodies may also scrutinize illiquid markets for potential manipulation, making it a critical factor in evaluating asset viability and investor protection.