What Is Liquidity and What Does It Do?

TL;DR

• 'There's a lot of liquidity in the market' = 'there's a lot of accessible money in the market.'

• 'Bitcoin is highly liquid' = 'there're plenty of people out there that will trade you their cash for your Bitcoin.'

• More liquidity = more people working in the space = more innovation = market growth = your crypto investments growing in value (in theory).​

Full Story

When exploring the crypto space, you're going to hear the word '​liquidity​' get thrown around a lot.

Annoyingly, it's a word that can take on a few different 'shades' of meaning...

So let's go over a few:

When you hear 'liquidity,' in relation to the overall market, think: 'accessible money.'

E.g. 'there's a lot of liquidity in the market' = 'there's a lot of accessible money in the market.'

Ok. But what does that mean exactly - how do you 'access' this money?

It could be via investors (e.g. venture capitalists), loans, or trade (e.g. trading your assets for cash).

Here's another 'shade' of liquidity for you:

When you hear that something is 'highly liquid,' think: 'it's easily traded for money.'

E.g. 'Bitcoin is highly liquid' = 'there're plenty of people out there that will trade you their cash for your Bitcoin.'

On the flip side, fine art is relatively illiquid - there's not THAT many people willing to buy fine art, which means it's harder to sell (liquidate) quickly.

Ok, so why the terminology lesson?

Well, it's all leading into today's news:

The venture capital firm 'Coinfund' just raised $152M to put into earl-stage crypto & AI startups.

This money will add liquidity to the market, once it's deployed (invested).

$152M ain't a lot of liquidity (accessible money) on the grand scale of the overall market - not by a long shot!

But given investment in the crypto space (specifically) has dried up so much over the past year - it's a great first step to recovery!

Why should you care?

More liquidity = more people working in the space = more innovation = market growth = your crypto investments growing in value (in theory).

Nice!