Categories: Fin-Tech Tool Box

Research Shows Majority of Tokens Have Almost No Liquidity

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The majority of tradeable cryptocurrencies have almost no liquidity, according to a report in Diar.

Liquidity is the term used in finance to describe how easily an asset can be transacted without its price being affected. Cash is very liquid, and art is not very liquid, for example.

Time to buy the dip?

There are, according to price tracking website coinmarketcap.com, currently 1,627 different cryptocurrencies, with a combined worth of more than $286 billion. Of this, just over $12 billion was traded in the last 24 hours.

To compare with fiat money – there is approximately $90 trillion in the world (according to The Money Project, October 2017), of which approximately $5 trillion is traded every day (according to the Bank of International Settlements, 2016).

A simple look at a price-tracking website will show you that the vast majority of cryptocurrency market capitalisation is accounted for by the top ten cryptocurrencies (Bitcoin, Ethereum, Ripple, Bitcoin Cash, Litecoin, etc.).

However, in terms of trading volumes, Diar says that these top five coins are responsible for 55 percent of all trading volume, and Tether USD another 17 percent.

To convert that to a percentage – more than 70 percent of cryptocurrency trading activity takes place with 0.36 percent of the available cryptocurrencies.

The trading volume of a full third of them (542 cryptocurrencies) equals less than $1,000, and almost 20 percent (312 cryptocurrencies) make up less than $100 of trading volume a day.

So, according to Diar, while the $12 billion figure at the top of the page could give the impression that market appetite for token speculation is healthy, the reality is that the vast majority of these tokens are not really liquid.

Many commentators have made comments to the effect that most tokens are not really serving a useful purpose, and their ICOs not selling anything of value.

Vitalik Buterin, founder of Ethereum – which is the platform upon which most ICOs are launched – said in September 2017 that the ICO market is an unsustainable bubble because most of the projects being sold will fail, and Dominik Schiener, co-founder of IOTA, told Business Insider in February that he expects less than 10 cryptocurrency projects to survive in the long term. Ethereum co-founder Joseph Lubin, speaking at a conference last week, compared the market to the early internet industry – the technology was sound, but most projects failed.

Liquidity is the term used in finance to describe […]

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