The first cryptocurrency appeared recently (Bitcoin in 2009). And at first, it was a strange thing that many financial companies did not recognize. But today, almost every well-known company accepts bitcoin payments. Moreover, other cryptocurrencies are becoming more popular and many users make thousands upon thousands of crypto payments every day. Coinmarketcap conducted a study and found out that the number of digital assets is more than 11 thousand.

It is not surprising that every user who plans to start a cryptocurrency business has to decide which digital currencies he will work with. And here the liquidity indicator is an excellent indicator. Cryptocurrency liquidity is also important not only for the user but also for the broker. Because it helps determine the liquidity of the asset and the trading platform. In this article, we will cover the important aspects of this metric.

Main Types of Liquid Cryptocurrencies

Every trader who decides to start a cryptocurrency business must understand all aspects of digital assets. Bitcoin and other digital currencies were created in order to provide fast, transparent, and reliable payments around the world (reduced fees, secure anonymous transactions, no restrictions). These coins revolutionized the financial sector and changed the traditional economy forever. It is clear that altcoins came after Bitcoin and many companies started to accept cryptocurrency payments. Dozens of alternative cryptocurrencies can increase their rate and bring profits to their holders. But things don’t always work out so well. Sometimes developers create a bubble – an unsubstantiated digital asset that only benefits developers without being useful or interesting.

The task of the smart user is to choose the most attractive option. And here it is helped by the liquidity indicator of cryptocurrencies. It takes several hours to understand this parameter. After that, a competent trader can identify a promising cryptocurrency and distinguish it from a fraudulent project.

Determining the liquidity of a digital asset is simple. You need to know two main parameters of a currency.

•         The volume of the digital asset.
•         The volume of transactions for the last 24 hours.

Trading volume is the main metric that many traders look at when they start a cryptocurrency business. But professionals understand that this indicator is interdependent with the asset price. For example, we will take Bitcoin – the most popular cryptocurrency. Traders make about $20 billion worth of trades every day. This means that about 638 thousand coins are involved in transactions every day (considering the price of one coin). Interestingly, the Cardano cryptocurrency (ADA) is more liquid but only ranked fifth. The total volume of transactions per day is 1.2 billion coins.

However, if we are talking about digital assets, then the coins with the highest rating (which are popular with clients) also have high liquidity. Many experts recommend buying coins of those currencies that are traded in volumes of more than 10 thousand coins per day.

Cryptocurrency Exchange Liquidity

Crypto liquidity is a complex parameter that is also associated with digital exchanges. Because this is where customers buy, sell and exchange cryptocurrencies. Therefore, it is important to pay attention to some basic aspects.

•         The number of markets available for trading;
•         Total trading volumes for the last day;
•         List of provided altcoins.

It is believed that the large volume of trading on the site is proof of excellent work. But this is not always true. For example, we will give two cryptocurrency exchanges.

1.   The first platform has a daily trading volume of $714 million. Also, users got access to 235 options for digital assets and can enter into transactions on 519 pairs.
2.   The second crypto exchange offers a less broad list of assets: only 30 types of digital assets and 94 currency pairs. Moreover, the trading volume here is only $511 million per day.

But if we analyze the ratio of markets and completed transactions, then the second floor looks more liquid. And this despite the fact that there is less.

The Importance of Partnering with a Quality Liquidity Provider

It is obvious that liquidity is a very important indicator for traders who decide to start a business with cryptocurrencies. Because this way he can be sure that the deal will be closed almost instantly. And this is easy to do if we are talking about the most popular cryptocurrencies (Bitcoin, Ethereum, Bitcoin Cash). But if a deal is made with unpopular altcoins, then there may be pauses. This will lead to price slippage and additional losses. The result is a disgruntled trader who signs up on a competitor’s platform.

A high-quality liquidity aggregator allows you to increase the depth of the order book and eliminate the risk of losing time when executing orders. What are the properties of a good liquidity provider?

•         High-quality support service. Professional employees are ready to help you at any time and quickly solve a problem situation.
•         The number of coins and cryptocurrency pairs available. The more digital assets a liquidity provider can provide, the better.
•         Lead time. The transaction must be completed within milliseconds. Forex prime brokers prefer to work with liquidity providers who can close a trade in 10-15 milliseconds.
•         Minimum spread. LP should offer virtually zero spread to clients. The minimum difference between the buy and sell prices is the determining factor for many traders.

Thanks to us, you can choose the best liquidity provider and start a crypto business with maximum efficiency.

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