What is liquidity, and how does it pertain to the crypto world? It is the ability to convert an asset into cash without affecting the price of that asset. The specific was chosen because cash is the most liquid asset. In other words, it measures the ease with which an asset may be bought or sold in the market at a price that reflects its intrinsic value.
What determines liquidity?
The liquidity of an asset is the means of its cash conversion. Therefore, the higher the trading volume is, the higher the liquidity. Stocks and bonds are very easily transferable to cash. Thus, the higher the trading volume of an asset, the easier it can be traded without a drastic effect on its market price.
How does it pertain to NFT?
NFTs have low liquidity. A trader can only conduct an efficient and fair sale if they meet the right buyer. In this circumstance, they can trade the NFT collectible for its actual value. If cash is the reason for the trade, they may have to reduce the price, which goes hand in hand with reducing the liquidity of the asset. A change in demand results in a reevaluation of liquidity.
If a market has low liquidity, it suggests there aren’t enough buyers willing to pay that price. When this occurs, you have to sell at a lower price or wait for additional individuals to enter the market before selling. If you want to sell at that moment, and the records show that someone sold at a lower price, this may reduce the market value of your NFT.
You must research how it converts to cash or other cryptos to find the crypto investments that can give you profits in the shortest period. The ease with which it converts can indicate how much profits are possible. Choose the assets that have the highest participants.