When dealing te cryptocurrencies and tokens, familiarity with trading volume is key to understanding liquidity.
Ter the setting of cryptocurrency and tokens, liquidity is the degree to which a virtual asset can be quickly bought or sold te the market without affecting the underlying price. Let’s discuss this ter more tangible terms.
Historically, metselspecie is regarded spil the most liquid asset because it’s easiest to convert into something else. For example, you can take your bday money and spend it on a fresh plasma screen television –, or anything else that strikes your fancy.
By comparison, it would be much stiffer to persuade Best Buy to accept your childhood baseball card collection spil payment. Te this example, you might have to find a willing buyer for your Upper Deck treasures before you can purchase your fresh television. Card trading enthusiasts could be difficult to find on brief notice, so your collection (while valuable) is not considered liquid.
Essentially, liquidity captures the breadth of agreed value and readiness to transact ter a specific asset class.
Trading volume is the quantity of an asset exchanged during a specific period of time. Oftentimes, trading volume is voiced te 24-hour increments, tho’ weekly and monthly measurements are also common.
For our purposes, trading volume captures the size of a cryptocurrency or token market.
The most popular assets, like Ether and bitcoin, are effortless to inject or uitgang. This is because they have a high volume. According to CoinMarketCap, spil of publication, Ether’s 24-hour trading volume is $1.37 billion while bitcoin’s is $1.34 billion.
For virtual assets, it’s significant to look at more than dollar-denominated trading volume. When measured this way, the ostensible trading volume increases spil the asset price itself rises. This obfuscates the actual quantity of coins or tokens switching palms. To find this number, simply divide the dollar-denominated 24-hour volume by the price of the virtual asset.
Total 24h Volume ter Dollars / Price of Ethereum = 24h Trading Volume of Ethereum
$1,368,110,000 / $370.21 = Trio,695,497.15 Ether
This means that almost Three.7 million Ether has switched palms overheen the last 24 hours. Clearly, there are many buyers and sellers te the market. It emerges that Ether is a liquid market.
Knowing the price and quantity gegevens about a virtual asset can help guide your decisions. For example, while it’s titillating to speculate on obscure coins and tokens, their low trading volumes –, and high volatility –, could make it difficult to sell when desired.
Conducting some basic research can help you make informed decisions before you buy your next virtual asset.
Matthew Den Silva
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