TL;DR
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‘There is a lot of liquidity in the market’ = ‘there is a lot of accessible money in the market.’
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‘Bitcoin is very liquid’ = ‘there are plenty of people willing to trade you their money for your Bitcoin.’
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More liquidity = more people working in the space = more innovation = market growth = your crypto investments grow in value (in theory).
Full story
When exploring the crypto space, you will often hear the word “liquidity” thrown around.
Annoyingly, it’s a word that can take on a few different ‘shades’ of meaning…
So let’s run through a few:
When you hear ‘liquidity’ in relation to the overall market, think ‘accessible money’.
E.g. ‘there is a lot of liquidity in the market’ = ‘there is a lot of accessible money in the market.’
OK. But what exactly does that mean: how do you access this money?
This can be through investors (e.g. venture capitalists), loans or trading (e.g. trading your assets for money).
Here’s another “shadow” of liquidity for you:
When you hear something is “highly liquid,” think, “it’s easy to trade for money.”
E.g. ‘Bitcoin is very liquid’ = ‘there are plenty of people willing to trade you their money for your Bitcoin.’
On the other hand, visual art is relative illiquid – there are not THAT many people who want to buy art, which means it is more difficult to sell (liquidate) quickly.
Okay, so why the terminology lesson?
Well, it all leads to today’s news:
The venture capital firm ‘Coinfund’ has just raised $152 million to invest in early crypto and AI startups.
This money will add liquidity to the market, once deployed (invested).
$152 million is it not a lot of of liquidity (accessible money) on the grand scale of the overall market – nowhere near!
But given that investments in the crypto space (particularly) have 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 grow in value (in theory).
Nice!