How does Bitcoin’s market liquidity impact its price volatility?

How does Bitcoin’s market liquidity impact its price volatility?

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Market liquidity refers to how easily Bitcoin can be bought or sold without affecting its BTC price. When liquidity is high, large trades can be executed with minimal price impact, resulting in lower volatility. Conversely, low liquidity means even small trades can cause significant price swings.

Liquidity can vary depending on the exchange, time of day, and market conditions. Periods of low liquidity often coincide with increased price volatility, which can both attract speculative traders and deter long-term investors. Watching liquidity trends alongside the BTC price can give traders better insight into when the market might experience sharp price movements.

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