# kaal:claim:4033886-022

**Claim.** When the bid ask spread grows too wide while trades occur at high volume, the market begins to lose liquidity and the asset's value starts to fall, forcing investors who unload positions to surrender unrealized gains.

**Type.** mechanism  **Support.** argued

**Holds when.**

- exchange traded context
- wide spreads combined with high trading volume

**Source quote.**

> Historically, in an exchange context, if the spread between bid and ask price becomes too large and trades are occurring at high volumes, the market will start to lose liquidity and the value of the asset will start to fall.

**From.** Wulf A. Kaal, Samuel Evans, Hayley Howe, *Digital Asset Valuation* (2022), III.3.a Lack of Liquidity, page 22

**Cite as.** Wulf A. Kaal, Samuel Evans, Hayley Howe, Digital Asset Valuation (2022). SSRN: https://ssrn.com/abstract=4033886

**Verify.** sha256 of source PDF `52ba05b1292b1be4bfaf1ee5cf56b14fea9c196d870603e794d7ee316df129bd` at https://raw.githubusercontent.com/wulfkaal/Academic-Papers/main/papers/pdf/Kaal%20et%20al.%20-%202022%20-%20Digital%20Asset%20Valuation.pdf

**Failure mode.** liquidity spiral on wide spreads  (family: liquidity-and-market-structure-failure)

**Topics.** defi, economics

**Keywords.** liquidity, bid-ask-spread, price-impact, market-microstructure

**Canonical form.** This markdown file is the canonical hashed representation of the claim. Its sha256 is the content hash used for attestation.