Liquidity can also be defined as the speed with which an asset can sell. Liquid assets, such as cash can be sold quickly. Assets that are not liquid (like cash) can take a long time to sell. However, this is only part of the picture. This definition of liquidity misses the most important part. Liquidity is simply a measure how fast an asset can be sold. Liquidity refers to the speed at which an asset sells without experiencing a significant price change. You may not be able sell your car within days at its current market value but you might be able sell it within hours if it is 90%. Cars are an inliquid asset. A nft loan can be considered a liquid asset. After explaining how crypto and art/collectibles are both illiquid, it is easier to see why NFT liquidity has been considered low. This stance is influenced by three factors: finding the right buyer, agreeing on the price, and timing the purchase.
Tip 1: Finding the right buyer
NFTs continue to grow in popularity, so it is not surprising that there is not much market for buyers. In a market that is still in its infancy and not widely accepted, it can be difficult for the right buyer to find you. You must be able and willing to sell your asset in order to be considered the “right buyer”. Although many are willing to buy a Bored Ape, or any other blue-chip NFT NFT, not everyone has the funds. This makes this NFT less liquid.
Tip 2: Agree on Value
The Bored Ape’s price must be agreed upon by both parties. This is where most purchases fail. If the Bored Ape is valued at 70 eth by the buyer and 75 eth by you, the NFT cannot be sold. Sometimes sellers may want to sell the asset at a lower price than the buyer originally desired. It is important to remember that liquidity depends on the asset’s market price. NFTs are not eligible due to the fact that bid/ask prices may vary widely and collectors can disagree on value. It is therefore difficult to quickly sell an asset at market value.
Tip 3 – Timing of the purchase
Because the NFT market is volatile, many collectors worry about timing. It rarely experiences stability. The floor of a project can change in just a few hours. Collectors may try to “time their purchase” by waiting for information on a project to become available or the price of cryptocurrency to drop. Collectors may have different preferences regarding when they wish to purchase an NFT. There is no set standard for what you should expect. If they aren’t sure if the buyer is the right one or agree on a price, they might hesitate to purchase an NFT. Market conditions (e.g., crypto market or NFT market) could explain this. This is another reason why NFTs can be so volatile.
Everyone wants to be able to sell assets whenever and wherever they want, without losing their market value. This is not possible. Assets that have higher liquidity are less risky than those with lower liquidity. Art and cryptocurrency are both the most liquid assets. It is easy to guess that an NFT (a combination of art and crypto) would be included in this category. It could be a separate category, making NFT collateral difficult to determine. Because not everyone is drawn to the same artist or style of art, art, even collectibles is highly liquid. Even if you find a buyer for your art, it is possible to disagree on its value. Because of the volatility in cryptocurrency markets, it can be considered volatile and illiquid. There are days/weeks when there is high volume and prices are rising, but there are also times when the opposite is true. To ensure there is no overall liquidity, liquidity must constantly be reassessed as the market changes.