Liquidity measures how easily an asset can be bought or sold without causing major price swings. High liquidity means tight spreads and smoother trading, while low liquidity increases slippage and volatility.
Example:
Bitcoin, with deep liquidity on major exchanges, can handle multi-million-dollar orders at $112,000 with little impact. By contrast, a small-cap altcoin might jump or crash 10% from a single $100,000 order.