Liquidity Problems — One of the Biggest in Current Cryptocurrency Exchanges
We are in that phase of technology where “Cryptocurrency” and its “Trading” does not require any formal introduction. Nearly everyone has more or fewer competencies on this revolutionary digitized virtual currency.
It’s sad that cryptocurrency does not comply with Satoshi Nakamoto’s vision of establishing a decentralized transfer system. Instead, the high volatility in the price has made it acquire a position along with trading assets. Bitcoin, the most popular cryptocurrency has been carrying out a journey with ups and downs from 0 USD to 20k USD. No other trading asset has assured such volatility till date.
Why is Lack of Liquidity a Major Concern?
Liquidity is a vital element for any of the market. Lack of cash creates an imbalanced environment, and things go out of control. This does not mean, the price of an asset should not fluctuate at all. The oscillations are beneficial on a long run for better returns. Else, there isn’t any purpose of existence of these tradable assets. The point is, we should have compatible buyers and sellers which keeps the market going.
The Problem of Liquidity on Current Exchanges
Since the start of cryptocurrency trading, the problem of liquidity has been carried along. With gaining popularity of cryptocurrency, many people have given a shot to try their hands on developing a cryptocurrency exchange. It is obvious that not all exchanges are the same. Each one will have different trading pairs and hence a separate trading volume. As a consequence, the liquidity of every exchange differs.
Throwing the entire blame on an exchange is not correct. From 1600+ cryptocurrencies, not each one has the capacity to attract potential investors and traders. So, the coin listings which the exchanges choose fails to maintain/generate proper liquidity. There are news flashes where some of the popular exchanges are removing tokens which fail to generate proper liquidity on the exchange.
To make this fact more evident, a survey result derived from the opinion of traders’ states that 36% of them are upset with the problem of liquidity on prevailing exchanges. An upcoming Cryptocurrency Exchange, Encrybit organized the survey.
What should Exchanges do to overcome the problem of Liquidity?
The exchanges will have to brush up a lot to maintain liquidity on the exchange. Firstly, be promising enough to entice potential investors and traders, institutional people, etc. who can actively participate in trading and thus maintain the liquidity on the exchange.
Secondly, the exchange provider should carry out extensive research for deciding which coins should be added to the listing. This is a part of fulfilling the first point. As you may know, not all coins are good and attractive to all the traders. From tons of them, only a bunch are the ones who matter to a majority of the traders. The exchange must have the foresight to evaluate the future of coin and then add it to their exchange.
At the end
Lack of liquidity is one of the major issues revealed, and there are many other. The surveyor Encrybit has got the exact facts and is working on the right path to improvise on these problems faced.
Cryptocurrency trading has been a debatable topic and Encrybit desires to strengthen the roots with its contribution towards developing a user-friendly exchange, feature-rich as expected by the traders.
Recommended Read (Other Issues faced by Cryptotraders):
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