Changes in Bitcoin exchange liquidity significantly impact its price stability. High liquidity, characterized by a large volume of buy and sell orders, allows for smoother price adjustments and reduces volatility. When liquidity is abundant, large trades can be executed without causing drastic price swings, stabilizing the market. Conversely, low liquidity often leads to sharper price fluctuations, as fewer orders are available to absorb big trades, amplifying market reactions to news or events. Data from exchanges shows that during periods of reduced liquidity—such as holidays or market downturns—Bitcoin’s price tends to experience higher volatility. For instance, thin order books exacerbate price drops during sell-offs. Thus, maintaining robust liquidity is crucial for price stability, benefiting traders and the broader cryptocurrency ecosystem by fostering confidence and reducing risk.