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Liquidity Is A Major Issue Not Only In Crypto
Personally I only really got into liquidity and understanding it a bit when I invested into DeFi in particular CUBDeFi
What Is Liquidity
Liquidity are assets that can be moved around freely. They are not locked up for any period of time or placed into other hard assets. In general it's how fast a asset or a security can be bought or sold in the open markets without affecting the assets price or converted into cash.
A Run On Banks
That end part is pretty critical to understand right now as stable coins provided a new source of liquidity to the platforms. However this change has now created the reverse issue. As the markets are crashing and people are trying to move their stable coin out into Fiat it's causing bottlenecks and is why we saw Celsius pause all account withdrawals.
It's the same thing you would see when you see a run on the banks and sparked into the great depression. People feared they needed their money and ran to banks to cash out. Only to find out that there was no money to give them and closed up.
You see banks are only required to hold a small amount of cash as liquid cash while the rest gets loaned out and borrowed. During normal operations a bank has plenty of money to allow people to move assets around as they like. However when panic sets in and there's a run on the bank there's simply not enough to give out.
Now while I don't feel we are going to go into a depression we are not far from it and we haven't been far from it for some time now. All this talk from the heads saying the economy is doing good and recovering has been total BS and a way to try and save face. The economy has been slowing down for years and covid lockdowns created a mess in which wouldn't be felt for a year which we are now feeling. That's the funny thing about the world economy. Changes today normally don't effect us till a year later.
The Big Bear
Bear markets like we are in do a good job at uncovering the junk. However that junk still has investments and collapses. When it does so it starts to crumble or stress other assets that might have been tied to it. Take the case of LUNA and UST.
Personally I don't like stable coins and I believe if we didn't have them we wouldn't be in the mess we are now. Granted we most likely wouldn't have rallied like we did either. What will happen is the markets are going to get rocked, Projects are going to fail, some cryptos will become worthless and a huge wake up call should take place.
This Is Opportunity
It's crazy to think and it does take a huge mind shift and almost 180 yourself. When assets are crashing like this but seem over sold while after doing your own research you find it seems like a rather stable and robust project that will be able to weather a storm like this it might be time to double down on it.
These massive corrective sell offs allow you as a investor to pick up positions for far cheaper than you would have before. This applies for stock and crypto. As a rough example of this I have a few REIT stock which pay out dividends. During the 2020 crash that lasted all but about 3 months I bought HEAVILY into a few REITs and there dividends where at about 6% at the time. Since then these have recovered very well in fact the stock nearly doubled and the dividends nearly doubled. This means my assets I bought are worth twice as much and during that time I am now earning about 12% APR on my stock dividends. That's huge! But I wouldn't have been able to do it without that massive shock and sell off. While everyone else panic sold I saw it as a opportunity and that's how you should be looking at this on the long term play level.
*This article is for entertainment purposes only and is not financial advice.
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It's that part where the bank mostly will encourage their staff to go out and do lots of marketing. In a bit to get people to save with them.
My journey into crypto revealed to me that the money in our bank accounts are not even there anymore. And if something happened like you explained above, then, it's mostly likely they will shut down because the chunk of the money has been loaned out.
In a true sense, it's during the bear market like this, that one can truly spot good investment portfolio to double down on.
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Liquidity is a special glue that keep things moving.
For the banks it is clear when they have less cash handy it could cause chaos.
In crypto lack of capital is the factor for lack of liquidity.
DEFI is a learning experience to see what crypto will do in the future growth.
!BEER
Posted Using LeoFinance Beta
I think that in addition to entertainment, you can extract something important from this article). Many people face a lack of liquidity and questions about this arise.
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