Liquidity is a key economic indicator driving all market prices, and cryptocurrencies are no exception. Bitcoin liquidity refers to how easily an investor can convert their digital currency holdings into a different virtual asset or fiat currency without the transaction dramatically affecting its overall value. Put another way, Bitcoin liquidity refers to how easy it is to buy and sell Bitcoin without a resulting price swing.Economists cannot measure the liquidity of an asset directly, so they frequently use proxies like the bid-ask spread (the difference between the highest purchasing and selling prices), trading volume, and overall market size to estimate it. High liquidity reduces price volatility, and Bitcoin offers the highest liquidity amongst all cryptocurrencies, partially explaining why it is consistently the most valuable digital asset.