Bitcoin’s exchange liquidity significantly impacts its price stability. High liquidity, marked by substantial trading volumes and tight bid-ask spreads, allows large orders to be executed with minimal price slippage, reducing volatility. Exchanges with deep order books absorb market shocks better, stabilizing prices during sudden sell-offs or buying frenzies. Conversely, low liquidity amplifies price swings, as thin order books struggle to handle large trades, leading to sharp spikes or crashes. Data from major exchanges like Binance or Coinbase often shows that periods of reduced liquidity—such as during market uncertainty or regulatory news—correlate with heightened volatility. Furthermore, liquidity fragmentation across exchanges can exacerbate instability, as arbitrage opportunities arise, driving rapid price adjustments. Thus, enhancing exchange liquidity is key to fostering a more stable Bitcoin market, benefiting both traders and long-term investors.