An issue with cryptocurrency exchange development is the scarcity of enough liquidity. Explore why liquidity is inevitable for them and how to maintain it.
The use of old and new cryptocurrencies is increasing day by day. With this increase, the crypto development market is becoming pervasive than ever. Now, it is not under the impression of scandals and hacks. Indeed, now it is entering the space of non-profits by facilitating them to conduct safe, fast, and efficient transactions while establishing trust. Read on this blog to find out how cryptocurrency exchanges are helping developing countries to include unbanked people and provide them access to efficient financial services.
When we talk about the cryptocurrency exchange industry, the efforts to achieve global adoption are commendable. However, an alarming issue with them is the scarcity of enough liquidity. Not all cryptocurrency exchange platforms experience a high user count. To conduct faster settlements and channelize the buying and selling mechanism, stocks, bonds, or digital currency require a higher liquidity market. Indeed, as per a study conducted in early 2019 to track daily crypto trade volume, nearly 56 exchange platforms faked their data. Given this event, CoinMarketCap announced that it will consider liquidity as a default metric for ranking cryptocurrency pairs and exchanges.
So, let’s find out why liquidity is inevitable for cryptocurrency exchange platforms.
Understanding Liquidity | Cryptocurrency Exchange Platform
The liquidity of an exchange platform is the extent to which we buy a specific asset and liquidate without affecting its price’s general stability. The higher an exchange platform experiences the liquidity, the higher it gets user engagement.
In terms of liquidity, we can classify an asset as liquid or illiquid. Generally, liquid assets have an open market for trading, while we trade illiquid assets privately. In other words, when it is difficult to encash an asset, we call it illiquid.
Why Smooth and Stable Liquidity is Important
Liquidity is one of the most important factors that we must consider during the development of a cryptocurrency exchange platform.
Fairtrade Prices
Having a good number of crypto traders or investors on a cryptocurrency exchange platform necessitates the maintenance of the system. It is because a platform having high trading activity will make the seller bid at competitive prices. Ultimately, it enables buyers to bid at higher prices. It creates an equilibrium indicating the market stability, and thus, implying fair market trade prices.
Faster Transactions
If a platform experiences higher liquidity, it can fulfill orders quickly based on the demand and supply, with faster transactions.
Data Volumes for Technical Analysis: If a platform has huge chunks of data, it can more accurately predict the technical analysis. Prices and charting patterns of the past are still primary methods to predict the price and current landscape of values of cryptocurrencies. Having higher liquidity on the platform means huge volumes of data for technical analysis.
Factors Affecting Liquidity
The following are the factors that influence the course of liquidity of an exchange platform. Let’s take a look at them.
Trading volume
Having high trading volume means the volume of a crypto coin’s trade over an exchange in the last 24 hours. The liquidity and the activity of an exchange platform tend to increase if the trading volume of a specific coin is higher.
Acceptance
One significant factor in an exchange's quest for increased liquidity and enhanced credibility is its ability to achieve global acceptance. A prime example of this is the widespread recognition of Bitcoin as a viable means of conducting transactions, with major players like Apple and Amazon embracing its use.
Regulations
Cryptocurrency usage is subject to varying regulations in different countries, and these legal frameworks directly impact cryptocurrency liquidity. Some countries have imposed restrictions on cryptocurrency, resulting in reduced liquidity for specific cryptocurrencies within their jurisdictions.
Solving Liquidity Challenges
Listing of Cryptocurrencies
With more listed Cryptocurrencies in your exchange, you can attract more users.
Payment Streams Integration
By adding up different payment streams such as wallet service, credit card, debit card or crowdfunding will facilitate trading thus enhancing the user count.
Access to Multiple Order Books
Maintaining liquidity is facilitated by successful cryptocurrency exchange development and securing listings on multiple cryptocurrency exchanges.
Insertion of advance trading features
It boosts profitability by enabling investors to buy and sell the stock at a specific price.
Intuitive interface
A user-friendly interface allures the Crypto traders to your platform.
Conclusion
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