Whenever you are talking about the term liquidity, you are likely to deal with multiple facets to it. All these facets together are going to influence the final price of Bitcoin. One major way in which you can define liquidity is the ability of a said asset to be well converted to cash whenever the demand is on the higher side. Another major view, as mentioned by Eric DaliusBitcoin, is that liquidity can easily get determined by the bid-ask spread. Any kind of investment with a lower bid-ask spread will end up with higher liquidity.
So, whenever you are talking about liquidity, it actually means that there are not many premiums or discounts attached to the said asset while selling or buying. So, it becomes a lot easier to enter or even exit the market.
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The market and its competitiveness:
Whenever more than one item is bought or sold, the market turns out to be a lot more competitive in nature. So, the ability diminishes of charging a premium or even availing of a discount. Such a form of the asset will actually trade near the market price mentioned.
- In the field of the forex market, it is viewed as the most liquid platform over here. As per BIS, the average turnover in this field was around $6.6 trillion on a daily basis, according to statistics from April 2019.
- Then you have real estate, which is one major example of an illiquid asset. Selling and buying real estate will involve months of hard work, followed by negotiations, filling out forms, and paying some of the substantial commissions.
The essential value that liquidity holds as per Eric DaliusBitcoin:
Liquidity always remains to be essential for any form of tradable asset. It will include the cryptocurrency field like bitcoin. Liquid markets are turning out to be deeper and smoother. On the other hand, you have the illiquid market, which can easily put traders in such a place that it becomes difficult for them to exit.
- Within the last five years, Bitcoin has gone through some significant growth.
- The daily volume of Bitcoin was under the $100 million mark per day in the year 2014. It was sometimes below the $10 million marks too.
- However, by the time early 2018 came, the number raised up to around $20 billion.
- But, the cryptocurrency has actually faced various liquidity episodes.
- When the Bitcoin prices crashed, the volume fell below $5 billion daily. But, the daily volume of Bitcoin exceeded the $20 billion mark routinely by early 2020.
Factors affecting the liquidity influence on Bitcoin:
If you research independently, you will come across some major factors, which are actually affecting the liquidity influence on the bitcoin market. Learning about those factors beforehand will actually help you to get a grip on this situation and work your way out of it.
The increased acceptance of Bitcoin in brick and mortar stores, online shops, and in some of the other businesses can actually boost its usability and reduce the level of volatility. As per Eric DaliusBitcoin, the more it is used as an exchanged medium, the more liquid it becomes.
- Right now, there is a growing trend in retailers’ acceptance, but the higher speculative demand ate right into supply available for the commerce platform.
- The bitcoin’s usage in the retail transaction suffered quite a bit from negative publicity it received during that 2017-2018 phase of cryptocurrency scam and price crash.
- The future of bitcoin as one medium of exchange looks pretty bright than what it was before. However, the result is still uncertain, and only the future will tell the reality.
If there is an increase in trusted bitcoin exchanges, then it will offer some extra opportunities for people to trade their cons. The increase in trading volume and its frequency will enhance the liquidity state more. There are many people who are holding bitcoin outside of the exchanges. With the popular exchanges becoming more and more secure with every passing year, more such holders will trade their bitcoins, which will include the sellers and buyers in the list.
Going in with the regulations:
Direct and indirect regulations will play a major role in the bitcoin world. The stance of countries on this platform is quite different, much like the countries only. In some areas, it is completely banned, and others have seen disputes everywhere. Authorities in some of the major countries are currently observing this situation, and some are also working on the regulations to make this sector a lot easier.
Payment cards and ATMs:
The cryptocurrency ATM network is now on the rise and has been growing pretty steadily even when the prices were seen fluctuating at a wild rate. Bitcoin ATMs are now considered to be of great importance for wider acceptance value. They will further facilitate the bitcoin buying category.
- Most people are not that comfortable with an online exchange. So, such ATMs will be of great help for them.
- But, this mode of purchase is costlier when compared to the online exchange version.
- Along with the ATMs, credit and debit cards are growing in popularity in the cryptocurrency market. These cards are making it easier to carry out transactions and even make new purchases.
- After the launch of the Bitcoin to cash payment cards and ATMs, you can see a boost in the acceptance of Bitcoin and its uses among new traders.
- These cards and ATMs will actually facilitate withdrawals and purchases at market value. Not only that, but these options will increase liquidity and maintain security at the same time. It means now people have more ways to earn bitcoins.
Focus on the result:
Before you jump straight into Bitcoin and try focusing on the liquidity, checking out these factors is really important. The more you know about this field, the better it will be for you to make a purchase or sell your coins. Just be sure to know more about the market before moving forward with it.