Tamta is a content writer based in Georgia with five years of experience covering global financial and crypto markets for news outlets, blockchain companies, and crypto businesses. With a background in higher education and a personal interest in crypto investing, she specializes in breaking down complex concepts into easy-to-understand information for new crypto investors. Tamta's writing is both professional and relatable, ensuring her readers gain valuable insight and knowledge.
As a hard-working, goal-oriented, and well-rounded person, I always strive to do quality work for every job I do. Faced with challenging tasks in life, I have developed the habit of thinking rationally and creatively to solve problems, which not only helps me develop as a person, but also as a professional.
Speaking about my professional activities, I can say that I have always been attracted to the study of foreign languages, which later led me to the study of translation and linguistics. Having great experience as a translator in Russian, English and Spanish, as well as good knowledge in marketing and economy, I successfully mastered the art of copywriting, which became a solid foundation for writing articles in the spheres of Fintech, Financial markets and crypto.
With nearly 23,000 cryptocurrencies in the trading sphere, the global crypto market has grown immensely, reaching a $1.1 trillion market cap. These impressive figures continue to surge daily, signalling the ever-increasing amount of funds circulating within the crypto industry.
Consequently, the crypto market is one of the largest and most liquid financial markets globally. So, how liquid are altcoins, what are the top most liquid ones, and what can liquidity say about the particular crypto project?
Liquidity allows cryptocurrencies to be traded smoothly, preventing price manipulation and indicating a crypto's financial health.
The leading indicators of an altcoin's liquidity are trading volume, market cap, and coin distribution. They collectively signal the asset's market health.
Bitcoin, Ethereum, Tether, XRP, and Binance Coin are among the most liquid cryptocurrencies, reflecting their robust market presence and wide acceptance.
Importance of Liquidity in Crypto
Liquidity, in simple terms, is the ability of an asset to be bought or sold without causing a significant change in its price. It reflects the smoothness with which a particular asset can transition into cash.
In cryptocurrencies, liquidity plays a very important role. To illustrate, a highly liquid market facilitates smoother transactions, meaning you can sell your crypto assets quickly and at a fair market price. This eliminates the risk of having to sell your assets at a discounted price in a rush or being unable to sell them.
Liquidity also demonstrates the health of a cryptocurrency. High liquidity equals a mature and established market with a large number of traders and transactions, which in turn reduces price volatility. It assures traders that there's less likelihood of encountering price manipulation, which could easily occur in low liquidity cryptos, especially when a few entities control a significant portion of a particular asset.
Lastly, a highly liquid cryptocurrency enables price discovery. It means the price of the crypto reflects its true value based on the law of supply and demand, leading to more accurate and fair trading.
How To Check The Altcoin Liquidity
If you're looking to measure the liquidity of an altcoin, three key indicators can guide your understanding: trading volume, market capitalisation, and token distribution.
Trading volume is the most crucial metric to determine the asset's liquidity. It indicates the number of coins traded (bought or sold) within a specific timeframe, usually 24 hours. Higher trading volume can indicate high liquidity, illustrating that a substantial number of people are trading the asset. This means the altcoin can be quickly converted into cash or other assets, as there's a large pool of interested buyers and sellers.
Market capitalisation, commonly known as market cap, is another crucial indicator. It is calculated by multiplying the current market price of a coin by its total circulating supply. A high market cap usually suggests that the asset has high liquidity. Why? Because a larger market cap often signals a broader acceptance and usage of the altcoin. This subsequently increases the probability of finding a buyer when you're selling and a seller when you're buying.
The total supply of tokens and how they are distributed can also provide insights into liquidity. If a small number of entities hold a large proportion of the total supply, trading might be more challenging. This could result in a liquidity crunch, as these entities can significantly influence the price by suddenly selling or buying large amounts. Hence, a more distributed supply, where no single entity controls a significant portion, usually indicates better liquidity.
These factors can offer a comprehensive view of an altcoin's liquidity. It's not just about how quickly you can sell but also at what price and how that transaction affects the overall market for that asset.
Top 5 Most Liquid Cryptocurrencies
Let’s overview the five most liquid cryptocurrencies on the current market.
Bitcoin, the first-ever cryptocurrency, boasts a massive market cap of around $520 billion and a daily trading volume of $14 billion. Bitcoin's high liquidity reflects its wide acceptance and popularity.
Next in line is Ethereum, with a market cap of around $200 billion and a trading volume of $6 billion. Ethereum's liquidity is substantial and can be attributed to its role as a platform for smart contracts and decentralised applications. Its influence is particularly evident in the rise of DeFi and NFTs.
Tether, a popular stablecoin, has a market cap of $84 billion and a whopping trading volume of $26 billion. As a stablecoin, Tether's role is to provide stability in the highly volatile crypto market. Its high liquidity facilitates smooth and instant transactions, making it a preferred choice for traders seeking to avoid volatility.
Binance Coin (BNB)
Finally, there's BNB, the native coin of the Binance exchange, with a market cap of $33 billion and a trading volume of $370 million. Binance coin liquidity is critical to the operation of the Binance exchange, serving multiple utilities like paying transaction fees and participating in token sales.
XRP, developed by Ripple Labs, has a market cap of $28 billion and a trading volume of $1.4 billion. Designed to facilitate fast, low-cost international money transfers, XRP's liquidity is critical to its functionality and wide-ranging appeal.
How Can The Liquidity Of a Coin Be Improved?
Boosting a coin's liquidity essentially boils down to increasing its availability and appeal to a broader audience. One crucial step is getting the coin listed on numerous reputable exchanges. This move broadens the coin's exposure, making it accessible to more traders and encouraging more transactions.
Widespread distribution of the coin is equally essential. Again, if too few entities hold a large share, it could skew the market and affect liquidity. Therefore, promoting fair distribution is vital.
Transparency is another ingredient for liquidity. Regular updates about the coin's progress and partnerships can build trust and encourage more trading activity.
Finally, building an active ecosystem through easy-to-use wallets or third-party integrations enhances the coin's utility and appeal, boosting liquidity.
In crypto, from Bitcoin to thousands of diverse altcoins, one thing stays constant - liquidity. It's more than a number; it's the pulse of each crypto asset, signalling its health and stability. It ensures smooth trading, protects against price manipulation, and helps you make confident investment choices. So, whether you're eyeing the time-tested Bitcoin or a new, exciting altcoin, remember to always look at the liquidity of the particular asset.