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Crisis Liquidity Meaning

Crisis liquidity refers to the availability of capital and market depth during periods of extreme financial stress. In crypto markets, crisis liquidity becomes critical during sharp price movements, systemic failures, or market-wide deleveraging events.

Liquidity often evaporates during crises as market makers withdraw, spreads widen, and trading venues experience congestion or outages. This can exacerbate volatility and lead to cascading liquidations.

Institutional crypto participants plan for crisis liquidity by diversifying execution venues, maintaining OTC relationships, and holding stablecoin reserves. Infrastructure resilience-such as reliable APIs and settlement systems-plays a key role.

Events such as exchange collapses or stablecoin depegs have demonstrated how fragile liquidity can be in stressed conditions. Effective liquidity access during crises is a differentiator for professional trading firms.

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