Topic: Is there a correlation between liquidity and volatility? (Read 419 times)

For there to be liquidity there must be volatility thay would trigger the market to be moving in a to and fro manner. Continue volatility what normally lead to liquidity in the market so there is no way liquidity can exist without the market up and down movement. Once we understand the manners which volatility works, we are going to know that we don't have to stress ourselves on how a project is going to create liquidity. Bitcoin has it way of generating liquidity through the law of demand and supply. This law had different projects to create liquidity for their tokens to skyrocket to the moon.

All cryptocurrencies have volatility. Bitcoin also has volatility.  But that's less than altcoins. But Bitcoin's liquidity is more than all other coins. Because of Bitcoin's liquidity, it is easy to sell, while it is easy to convert to cash.  Its liquidity is more than other alt coins. It is very reliable coin and its transaction is also easy.  But its volatility is lower than other coins but it exists.

NO, i don't think so. High liquidity means there is a large number of buyers and sellers in the market, making it easy to execute trades.
So high liquidity can sometimes be associated with lower volatility

Liquidity doesn't limit to sell or convert assets, it also means ways to have quick access to cash but in crypto, you are right about that, enough liquidity means you can easily sell or convert to cash without having any form of difficulty in doing it.

I think liquidity of bitcoin is subjective to people, the fact that I have 1 bitcoin and I can be able to sell easily doesn't mean that Micheal Saylor can do that because as of today, he has about 158k bitcoin under his holding and if today he moves that bitcoin from one wallet to another, people are going to panic and will want to sell all their own because they will think that he is about sell everything and cashout from his investment and that alone can tank the price for that influence with huge volatility. Elon Musk also did sell some of part of their bitcoin reserve because of same liquidity challenges.

I think Bitcoin is huge but let's keep bringing more and more investors and build large empire of investment, a time will come that we will not care about this liquidity again because it will be available more than enough and bitcoin volatility will be low by that time.

Generally, the less liquidity, the higher the volatility. Why does this happen? Buying or selling even a small volume with low liquidity can significantly affect the price of a product. And if you have a large amount of coins or shares, it will be extremely difficult to sell them at an acceptable price

Well yes of course it's the supply and demand that makes it volatile. If there is no flow of buying and selling it means it also has no volatility. Liquidity is very important in an asset because aside from executing buy and sell it also makes the said asset alive. Centralized assets is also different and might contradict the process because they have high liquidity but is stable compared to decentralized assets.

You are very correct about that. The higher the liquidity the higher the volatility. Because the money investors pump in  bitcoin that made bitcoin maintain it's prestige. Bitcoin can never be volatile if people do not invest in it.  And I discover that there is no special features that made bitcoin unique from other altcoin rather than the money invested on it.  If eve body pull out there money from bitcoin will it still remain bitcoin? Because our people said a monkey can only be smart when it jump from tree to tree when the the tree is near to each other. And I think that is the formula holding bitcoin. That is why we are always have different conversations where set always say hodl for long because by everyone holding bitcoin it's making it relatively scarece and adding more liquidity to it because we are gradually forming a strong chain and a large number of bitcoin community. And that will enhance or speed up bitcoin growth. And meeting up to our expectations on bitcoin price.

Volatility can be useful for traders, but you need to know how to take advantage of it. If you are trading some altcoin that you see potential for growth, then you can take advantage of this, but I would only dare to do this in a bear market, so that if it falls further, I have hope that it will rise again in a bull market. In any case, volatility is what attracts traders to the crypto market.

And liquidity is important for large players who need to sell large volumes quickly, this especially applies to top coins, because large volumes on low-liquidity coins can greatly affect their price.

It's interesting that some people here tend to agree that higher liquidity means higher volatility. I wanted to write that there's no correlation because things can vary depending on an asset, and an asset can have low liquidity but be volatile because even small changes make a big impact, or, conversely, something like gold can be relatively stable but have very high liquidity. But then I also came across an academic article that says that there's actually a significant inverse correlation between liquidity and volatility. So the higher liquidity, the lower volatility and vice versa.

It's too simple to think that high liquidity means low fluctuation. Just so you know, it's not a good idea to think that high liquidity doesn't also mean high instability. Why? When liquidity is great, a lot of players are ready to enter or leave the market at any time. This is not a game; it's the real market, where big fish play. In a market that is supposed to be "liquid," a big order sends shockwaves through it. You don't think that makes things volatile?

Cryptocurrencies are like chaos. Large orders can, and do, make waves. You say liquidity is just 'willingness to trade'? Please. It means being able to handle big sales without having to change prices a lot. But that's hard to do in the unstable crypto market. As you may have guessed, big price changes happen because high liquidity doesn't always mean steadiness. Also, let's not talk about how news and market mood can make prices move like a rag doll. You're oversimplifying how liquidity and volatility affect each other. It's time to see the subtleties

There is correlation between volatility and liquidity in Bitcoin. Liquidity that Bitcoin enjoys is based on it Volatility and the more volatile it comes the more you can turn to cash

I do agree that it is not easy to keep liquidity and volatility in the same logic. I mean people willing to trade and people who are trading are quite similar sounding, but that doesn't mean it is true, it is quite different from each other and should not be considered in the same logic. I get that it may not end up being something that would be reasonable, but it is definitely something totally different because it is not how that works at all, it is totally different from what people think it is about.

Liquidity means there are a lot of buyers and sellers, not buying and selling at the moment, those people put out orders and the trader comes in and trades based on that, when someone puts orders that is not traded, they create liquidity, when someone comes in and trades on that, then it becomes volatility.

No, I would argue against high liquidity meaning high volatility. High liquidity means that there is a large number of buy or sell counterparts that would fill my order. It's not only about the number of traders, but also the quantity of traders. It could be that there are a lot of small buy or sell orders that would be filled by one single large trade and taking out all the liquidity from the market. Just because we can trade small amounts of cryptos all the time doesn't mean the exchange could handle a large order as well. Volatility comes into play when there are news coming out that have a big impact on the markets or economy. For example, the slow down of central banks to keep increasing rates means that risky assets become more attractive anymore. Many investors already expect rates to fall again next year to support the economy. When bonds and savings accounts don't offer interest rates anymore, investors will go back into stocks and cryptos. A constant rise or drop in prices doesn't mean high volatility, that comes from people taking profit and tryinh to get out of the market. Liquidity is people's willingness to trade and volatility is uncertainty and short term noise in the market.

If they just buy and hold Bitcoin, it won't increase stability, because speculators will still control the price. To have lower volatility we need more traders that will create more market depth - they should put buy and sell orders so that moving the price by 5% or 10% would require billions of dollars.

Another thing that we should look at is high leverage trading and derivatives - it could be that it is creating volatility on the spot market by influencing them.

I understand li liquidity to be the State of time an investor is stipulated to generate incomes through a trading effort of his assets while volatility is the possibilities of an Investors inability to predict an intime (future) ratios of the values rates of an assets due to the accessible flexibilities to fluctuations of assets demands.

You were right when you said that liquidity is about how quickly you can turn assets into cash. Stocks, cryptocurrencies, and even those fancy watches are all caught up in this storm. The catch is that liquidity doesn't always mean instability is welcome. Think of it like a crowded market; lots of buyers and sellers make for smooth transactions (high liquidity), but does it necessarily mean prices will swing wildly (high volatility)? Not really! Bitcoin is definitely a roller coaster, but take a look at large-cap stocks. They're liquid, but they tend to be more safe than your volatile cryptos. Because there are always buyers and sellers, high liquidity can mean more steadiness. It's like a safety net against wild price swings

Volatility isn't just about liquidity; it's about uncertainty, news, market sentiment - a whole cauldron of factors! Look at real estate. It's not as changeable as other things, but it can change a lot, right? It has to do with the situation and the setting. Can you now say that more liquidity means more volatility? It's not that simple black and white

If we are talking about crypto markets, you correctly said that, the lower the liquidity, the easier to impact in prices by buying or selling smaller quantities. You only have to watch those small caps that value less than a cent and in a few days go like x100 (and viceversa). The problem is that when you try to liquidate you may be dumping the price against your own interest: you sell for a good price the first units but very cheap the last ones.

Take for example MODEX: ask was at less than 1 cent in Bittrex (btw, the exchange recently announced that they are closing, so hurry up and withdraw!!) like two months ago, but yesterday $0.23. Easy maths, it went more than 23x in two months. And in 2021 did the same, and then dumped that hard, too. This proce action is inconceivable for high caps.

Yes, there is an increase in liquidity and a decrease in volatility. Aside from this, there is also a reduction in the influence of its price. It can also help to level out price fluctuation and reduce volatility. I'm referring to a positive correlation.

Whereas negative correlation is the inverse of positive correlation in terms of liquidity and volatility, there is also a disruption in the market, such as the negative news that we will experience, which is news that has a brief increase in the volatility of its price in the market.

I have my opinion that I think bitcoin volatility strongly correlate with its market capitalization, i can roughly think that its the same as gold, but the bitcoin market capitalization is still lower than gold by significant margin but seeing if bitcoin gonna be linearly growing from here on it might come as close as gold and also might have similar volatility in the future.
added with the fact that cryptocurrency market right now is getting bigger and bigger, but still can't deny the fact that there might be some other factors such as the general majority of investors of bitcoin that are really like to speculate while that on its own is not really a problem might be the cause of the increased volatility compared to the other investment instruments.
but we should also see that many of big investors, institutional investors, even pension fund are investing heavily in bitcoin that I think it will be the cause of stabilization of volatilty of bitcoin in the future.

I doubt that more liquidity can fix Bitcoin's volatility, because Bitcoin's volatility comes from the lack of fundamentals that are easy to calculate. Bitcoin's value is just a guess, a feeling, that's why it changes so often. If a stock of some company randomly jumped or crashed by 30%, a lot of market players would take the opportunity to counter such irrational movement. But with Bitcoin no one really knows if it's oversold or overbought.

So higher liquidity doesn't change much, it would just mean more players playing the guessing game.

Liquidity can happen if anyone investor or trader decides to do so for maybe FOMO or volatility of market season or for good investment reasons.
Volatility is thus a factor that could effect liquidity of assets for investors. It is not in a direct correlation to liquidity.

Even in times when the market is volatile, an investor or trader can choose to still HoDL and wait it out, possibly they still got plans or want it to rise more than it was, before considering liquidation.

I'm not an expert on this but, no, I think your conclusion is wrong. By the way, and first off, Bitcoin isn't really very volatile, at least not consistently. There are times when it's moving sideway as if nothing happens in the market.

Anyway, I don't agree with your conclusion because volatility is normally attached to lack of liquidity. So, if there is any correlation, I think the correlation would be a negative one, not positive. Meaning, the lower the liquidity, the higher the volatility.

There's probably no universal formula for this, however. Gold, for example, is generally stable, although it could also be volatile in shorter time frames, but it's highly liquid. On the contrary, Bitcoin is also liquid but generally volatile. On the other hand, other cryptocurrencies that have low liquidity can be highly volatile. This is the reason why so many altcoins are delisted from exchanges, because of very low liquidity, which makes them prone to manipulation resulting to high volatility.

I do agree that liquidity matters a lot and low ones could cause a lot of issues without a doubt, volatility is nice when trading but sudden movements are not nice. I get that dropping %5 one day and then going up %3 the next day type of things are fine for trading, and should be important, but that doesn't mean that we are going to end up with a result like that easily, its going to be a trouble one way or another. Because the low ones could have %40+ drop one day and %200 increase another, that's not acceptable. So all I think is that volatility is good just a bit. Its like vaccines, you make the body sick just tiny bit enough to get it used to it so that when it gets sick for real it knows what to do and ready.

Of course there are other things that determines how volatile a cryptocurrency (Bitcoin) is, but I think liquidity still matters because, like I explained; if Bitcoin weren’t so liquid as it is, what do you think about the volatility? It’ll definitely be reduced because lower/no liquidity gives a more stable price and inability for price manipulation. But when it’s very liquid, people can easily make trades that then adjusts the price, and price manipulation wouldn’t be difficult as well.

I tend to disagree with this, I think it's the opposite Higher Liquidity usually result in Lower Volatility, with more buyers and sellers, creating more tighter price gap in the order book, meaning the price movement will be less compared to lower liquidity when the price of order book will usually broader. But it also will depends on how decentralized those liquidity were, if the assets have high liquidity but it was owned by small amount of people, I think it will also have different effect.

Wrong but we are all leaning, what I am expected to say about liquidity and volatility..
First lemme start with the volatility; this refers to how an assets can instantaneous dropped/increased in price ( changing ratio of effects)..
While liquidity refers to as the total amount of fund being put into an assets to enable a continuous buying and selling. This is mostly provided by the project owner or anyone who is financially enough to provide liquidity to coin/token.
There could be liquidity in bitcoin Price that doesn't mean it won't drop but technically when looking from the other way we can say it both affect each others because when there's any bad news about bitcoin instantly you would see bitcoin declining in price immediately other coins following as well.

I would definitely say "no" on this assumption, if this assumption was indeed correct, thus high liquidity leads to high volatility then Bitcoin and Ethereum would be some of the most volatile crypto assets in existence.

Some months ago I've written an article on how to correctly apply the use of correlations into crypto trading and hedging strategies:

https://open.substack.com/pub/nils89/p/the-importance-of-correlations-in?r=2qzuk0&utm_campaign=post&utm_medium=web

I don't agree. because both it different. If high liquidity means buying or selling an asset without significantly affecting its price, and volatility refers to the rate like price increases or decreases. and if highly liquid assets like btc can be bought and sold easily. So, it not conclude that liquidity leads to higher volatility. Same factors like market sentiment, economic issue, and political events can contribute to asset volatility.

Although a market with significantly high liquidity typically has less volatility, this is not always the case. Depending on many variables, including investor sentiments and market conditions, the relationship between liquidity and volatility can change. Liquidity is something that indicates that we can buy that asset and not affect the price too much and volatility is how fast the price can change for an asset.

Despite having similarities, they are different and they complement each other very well. So you can take it as you want. They have different meanings. One could be used for the short term while the other one could be used for the long term. It depends on the assets buying and selling status.

I will look at the trading volume of those products to talk about volatility and liquidity.

Because here the OP is talking about the nature of time, not comparing over a wide enough period, with large markets such as gold, forex,... it is almost a part of the economy, so it is almost calculated. Drill bars immediately regardless of when you have large volumes of trades, and when those trades are large, then forced volatility will occur.

Returning to crypto, the truth is that we also understand that this market still belongs to the field of venture capital in the eyes of even large funds, although its potential is also being accepted, but the journey to achieving large-scale statuses such as stocks, gold,... will take a lot of time. That's why we hear a lot about an organization being able to manipulate prices in this market, they can easily direct behavior through news that directly affects excitement/fear also market participants.

High liquidity does not always cause high volatility too. For example stablecoins trading pair, here. https://www.bybit.com/en/trade/spot/USDC/USDT
You can see that both have enough liquidity to handle a total of over $3m in conversion value.

A definition that I found is that liquidity should not affect market prices. https://www.investopedia.com/terms/l/liquidity.asp

IMO, yes. Liquidity and volatility are connected, and I believe they can be divided into three categories in general view(my opinion).

# Low liquidity (i can say frozen) usually involves small transaction volumes, and asset owners may struggle to sell their assets due to a lack of interest from market and buyer. During periods of low liquidity, there are typically no significant price changes as investors are skeptical about its developments that still baby. This often occurs in the early stages when an asset enters unpopular exchanges (e.g in the crypto world).

# Medium liquidity involves a decent transaction volume but not a substantial one. Selling assets is relatively easy, but the moderate volume contributes to heightened volatility. I think this stage to have the highest volatility. This is usually a transitional phase where many significant investors begin to notice the asset. Some have already entered the market, while others are monitoring its movements.

# High liquidity (more liquid) , on the other hand, involves very high transaction volumes and people easy to convert their assets. Even large quantities of assets cannot significantly impact prices. Volatility decreases, and it takes longer for significant price changes to occur. This stage is characterized by stability and is reached when an asset has gained widespread recognition and acceptance.

Exactly, in my personal view, it's the medium liquidity level that makes an asset more volatile. This is because, at this stage, there is a decent transaction volume, making it relatively easy to sell assets. However, the moderate volume contributes to increased volatility, making price movements more erratic and unpredictable.

the inherent value of a company(based on produce and wholesale/manufactured cost vs sales). sets that value

however a "market valuation" is not based on the inherent value. a "market valuation" has many other things thrown at it to INFLATE it
listen to shows like sharktank when the investment seekers say "their revenue x3"

fiat shares valuation is a number where investors want to buy in at "x% undervalued" with the presumption that the share price they buy in at will reach the 'market valuation' in the 3x timescale

market valuation ---------------
                               /\/\   /\
      market price/\/\/      \/   \

....
however bitcoin also has value.. its a baseline everyone refuses to sell below because the cheapest place on planet to mine is x so no one wants to sell at a loss below X

bitcoins value sits below the market price

                       /\_/\     __
                      /       \/\/
market price/\/               ---
                         ---------
bitcoin value------


remember because fiat is inflationary and bitcoin is deflationary.. the way you view "valuations" is different
remember market valuations mean different things to a assets inherent value

remember bitcoin does have real world resources and costs backing it up(PoW). (however PoS crap coins dont)

---

i never "value" things based on 'market cap' or 'market valuation'

i prefer to value companies and assets differently

if i looked at a company and seen their wholesale to retail margin is 50%
i then take their sales and minus 50% to get to a figure of underlying cost. if the company was to get into trouble and needed to do a "price crash" sale of selling goods at cost. well that would be the baseline value. the liquidation amount

with bitcoin i dont look at market price of market cap. i look at cheapest mining on the planet to acquire bitcoin. and thats its value

I once attended a conference, where some very clever ex-wall street traders explained a few different strategies and this was one topic that came up. Traders love volatility because they are able to make big profits from "betting" on how a certain stock will perform and if the market is quiet they do not earn as much. Crypto is very volatile when compared to the regular stock market, which would take a rare occurrence for it to double in the space of a year, but somewhat comparable if you compared individual cryptocurrencies against individual companies - there is always a growth story happening somewhere. However you need to be aware that companies in the stock market are actually producing tangible goods or services, which makes a profit, which gives their shares inherent value, which is not the same for crypto.

There is some, the lower liquidity means the higher possibility of volatility. I understand that it is not going to be easy for everyone but it is definitely an issue that will not be all that simple. Think about it this way, if there is very little amount being sold, then if you buy it all, then you will skyrocket the price, or if there is minimum amount being bought, then when you sell it all the price will go down.

So liquidity matters, doesn't mean the highest liquidity coin bitcoin is not volatile, it is also volatile there too, but at least it can't crash due to single whale, or at least it would have to be some huge whale, like those big corporations that have tens of thousands of bitcoins to end up sell all their coins at the same time to crash it, and publicly announce it as well. I think it is quite nice situation to have your money at the highest liquidity coin, it makes you realize that you are going to be fine daily, maybe longer term still requires attention, but not flash crash type of deals.

Nah, I won't say it because volatility can't be directly proportional to high liquidity, in some cases it might be but at most it is not. For example, BTC no doubt has high liquidity and high volatility but USD dollars or any other forex token also have high liquidity but they are not so volatile. I hope this will be of some help. If still not then try to think of it from another angle.

Which is, when BTC has high liquidity it means the trades can be made seamlessly without any stop, it means one can sell 100 BTC even if there are no 100 BTC buyers at the other hand due to the liquidity pools of exchanges. And when that happens the demand and supply ratio is disturbed. Like when 100 BTC is sold and the buying pressure is lower then there will be more supply than demand and we all know BTC prices make changes based on demand and supply as it is a decentralized coin.

Therefore, high liquidity might mean high volatility in terms of BTC but for stocks and forex, it might not be so true.

I think there is, the more supply, the more volatile the market is.

But in my opinion, the only essential factor that would really decide whether a crypto is "volatile" or not is whether it's designed to be that way, lapses on the coding, etc., or not. Take bitcoin for example. Its 21 million supply should in theory not induce some sort of volatility, I mean for crying out loud the amount's pretty low for a global currency in the first place, but Satoshi forgot, or perhaps deliberately made it so that bitcoin's allowed some form of volatility for profit. until it snowballed into this billion-dollar industry that we're now enjoying every single penny out of. Design is important cause no matter how much coins there is on your project, if it's not made for volatility/profit, it's never going to be volatile.

The volatility depends on both the market liquidity and the supply. Yes, more liquidity leads to higher volatility, but only if the asset is scarce and the supply of that asset is limited. If Bitcoin was abundant on the markets(which is the opposite of scarce) the BTC volatility would be way lower, even though there's enough market liquidity.
There's an army of BTC HODLers, who help in keeping the BTC price high(because they don't sell their BTC). The Bitcoin price would collapse, if they decide to mass sell everything they have. I can't agree that Bitcoin market liquidity exists on the same level 24/7.
I think that the liquidity is closely connected to the market demand for BTC.
Sometimes, there's higher liquidity and there are periods when the market liquidity goes down.

Not necessarily. I think they are two different concepts in crypto and finance but you can understand both if them side by side.Basically liquidity is how easy you can turn it into cash and that doesn't automatically mean it's a rollercoaster in value or volatile. Take Bitcoin that is super easy to sell that makes it liquid but it can be all over the place in terms of price then volatile.

It's very easy to explain volatility and liquidity using bitcoin. Sometimes, it's possible that the bitcoin market will experience low volatility but you will still get high liquidity but the liquidity is dependent on how large the quantity of the bitcoin you have in your possession. With 100, it will be very to easily converted all that into other currency like usdt or any other type of stable coins but if an institutional investors want to convert there bitcoin into cash, it will be very difficult. Just like Microstrategy btc, even if the bitcoin volatility are high, it's impossible for such bitcoin to be liquid in a single transaction because the market is still young.

However, the market is better and more liquid of bitcoin to other altcoins, there are some altcoins even with high volatility, you will get nothing but zero value, if you even attempt to liquidate assets from such altcoins, the project will die immediately with -99% without a second thought. This is one of the challenges of investing in altcoins, they don't have much liquidity to handle sells pressure.

Nope, liquidity is no where corelated to the volatility and you will find some shit coins within almost no liquidity but they are highly volatile. It's just that Bitcoin or any other crypto (not all) are easily traded internationally through the CEX & DEX, you are confusing between ease of availability with volatility. Volatility is the nature of crypto and it will continue to remain volatile and also easily accessible for trading or converting into cash/fiat compared to other investments like stocks as the later are controlled and has to go through a process but Bitcoin is free from these controls.

This is wrong analysis. The higher liquidity means the lower the volatility since the big sell and buy pressure can be absorbed by the available liquidity without resulting a huge price impact. DEX is the best example on this case since it decentralized, The higher the liquidity pool is the lower volatility happening on a certain token assuming that price action on CEX is excluded.

The reason why crypto is too volatile despite we have huge liquidity is because CEX manipulating the price with their automated market maker. It reacts to the price trend happening across all exchange and create an order accordingly.

From what I have seen so far, I think that's right because I have seen some coins and tokens whose trading volume (liquidity) was very low on the first exchange it was listed on (a swap DEX), but after the same token got listed on a tire 2 CEX, the liquidity grew and the token became very volatile. Another one was that I was tracking one newly listed coin on Binance some weeks ago, and when I saw the coin, it only had a $44 million dollar liquity and was trading around $0.02. Later the next day, I saw that for that same coin, the liquidity was $150+ million and it was trading around $0.58.

What I know is that Bitcoin or other cryptocurrency is a much more volatile asset than gold, real estate, and other businesses that you have mentioned. The crypto market is only and takes place at the same time by different calibers of people (whales are also involved), and demand is high, but since gold and real estate are done more traditionally, I feel it's very slow compared to the cryptocurrency market, and that's because crypto is more volatile and liquidity has an influence on the volatile nature.

dont they have an inverse relationship?

if there’s high volatility investors might feel hesitant to buy or sell often waiting for the perfect time to finally enter or exit the market hence the decrease in liquidity

There is generally a correlation between liquidity and volatility in financial markets. When liquidity is high, meaning there are many buyers and sellers, it tends to dampen volatility as it’s easier to execute trades without significantly impacting prices. Low liquidity often leads to higher volatility as even small trades can have a larger impact on prices. Other things can also influence volatility like market sentiment, economic events & geopolitical factors.

i laugh at the highschool lessons you have been taught..
"supply/demand" is a meaningless expression unless you understand the context of such words

EG supply..
in 2012 there were only 11.5m btc in circulation.. in 2023 there are 19.5m..
more "supply" now yet prices are >6000x compared to 2012($6)

EG demand..
if bitcoin was only sold/mined/used in america, on american exchanges that only allowed americans to trade. the demand would fix the price to a smaller speculation range/window. it wouldnt matter if the exchange had reserves of 2m btc or 200k btc. the price would only pivot within a smaller slimmer range

What gives fluctuation in price is supply and demand and the rate of change between them. If the rate of change of supply to demand were constant, the price would be stable regardless of liquidity. If we take real estate as an example, it is considered one of the assets that is difficult to liquidate. However, severe fluctuation in its prices can occur. Just like gold, the market varies according to markets, but in the end, stable supply and demand, or the rate of change between them that is not abnormal, is what makes the price of gold somewhat stable, which is what makes real estate and Bitcoin fluctuate despite the difference in liquidity between them.

Quick question, does Bitcoin have more liquidity than the Forex market? I know your answer is No so why then do you think the more liquidity of an asset, the higher the volatility?. When there's more liquidity the market tends to be less volatile that's why the Forex market is less volatile than that of Bitcoin. Volatility comes from a market that can be easily manipulate like the crypto market (in this discussion, Bitcoin market). There are other factors that's making Bitcoin volatile which lack of regulation is one of them and that the assets is still a new one (having less traders as other market).

There are some amount of trade that if they're carried out on exchanges, the exchange won't have the liquidity to handle them and would cause a force maintenance for the exchange. Volatility of Bitcoin comes from the fact that Bitcoin is a free market so irrespective of the liquidity, the market will be volatile for that reasons but as more liquidity and institutional investors comes into the industry, the price would begin to be more stable than it usually is. When there's no liquidity that's why an asset can be manipulated and it becomes more volatile so don't think high liquidity equals to more volatility, it's the other way around.

I agree with the saying that the higher the liquidity, the higher the volatility. Bitcoin is only possible to undergo all the price change at the speed it is because it’s liquid, hence it’s easy to cash it out. But what if the liquidity was reduced to half or even quarter of what it is currently? I think because of that, the price shouldn’t see any significant changes compared to when the liquidity is normal. However, in as much as Bitcoin has good liquidity, the volatility doesn’t show as much as most other cryptocurrencies.

things like gold have set market rate which they control the international rate with things like "circuit breaks" to stop large price movements. they also select certain markets to sell gold for more controls

however bitcoin is truly an international market where there are many markets..

what you have to learn is that bitcoin mining in iceland is 10x cheaper than mining in japan/hawaii
so pacific ocean countries are willing to pay alot more market price because its below mining cost..
where as the northern atlantic/norweigen sea/siberian sea touching countries are mining and would rather sell

because the controls are not there to stifle free market. the price can vary alot when different countries have higher demands than others

take gold again. it might seem cheap to mine gold in africa. but the big quarrys are american/EU managed so the natives dont get to sell at a premium and push the price down to their cost rate. they instead just get paid low salary as employees. the americans/EU managers take it to us/eu and sell it for profit whilst keeping the markets inflated to not crash down to african true mining cost rate

As we understand, liquidity refers to the rate at which you can easily sell an asset or investment and convert it to cash (this is the best way I understand it). Some investments include stocks, cryptocurrencies like Bitcoin, real estate, high-end wristwatches, and more. Bitcoin is highly liquid because at any time of the day, year, or at any place I am, I can easily sell my Bitcoin for cash. However, Bitcoin and other cryptocurrencies are also very volatile compared to other assets or investments. Yes, they are liquid but not necessarily non-volatile. Can I, therefore, conclude that the higher the liquidity of an asset, the higher its volatility?