Price Impact

Price impact in crypto refers to the effect that a large buy or sell order has on the market price of a cryptocurrency. It measures how much the price moves in response to the execution of such orders. Price impact is influenced by various factors, including the size of the order relative to the total trading volume, market depth, and liquidity.

Example:

Let's say a trader wants to buy a large amount of Bitcoin (BTC) all at once. If the order is significantly larger than the available liquidity on the exchange, it will likely cause the price of BTC to rise as the order is executed. This is because the increased demand for BTC will outstrip the available supply at current prices, leading to price slippage.

Case:

In another scenario, a whale decides to sell a substantial amount of Ethereum (ETH) in a short period. The sudden influx of sell orders can overwhelm the buying demand, causing the price of ETH to drop sharply. This demonstrates how significant sell orders can lead to a negative price impact, resulting in price slippage for the seller.