'Your wealth is only real if you can...': Trader warns of hidden liquidity risks in your portfolio

A growing number of investors are waking up to a harsh reality—portfolio value on paper doesn’t always translate into real-time financial security. Shivam Gupta, Head of Trading at LCX, recently took to LinkedIn to explain what he calls the “liquidity trap,” a hidden risk many overlook until it's too late.

“Ever look at your investments and think ‘I’m doing well’? Then need actual cash and realise you can’t just withdraw it like a savings account? That’s the liquidity problem,” Gupta wrote, drawing from his experience managing $50 million in trading assets.

Liquidity refers to how quickly and easily one can convert an investment into cash without significantly affecting its price. According to Gupta, highly liquid assets—like Apple stock or Bitcoin—can be sold almost instantly due to their large trading volumes. “If you want to sell $100K, it can be done in the blink of an eye,” he said. In contrast, assets like startup equity, niche crypto tokens, or even real estate can take weeks or months to offload, often at steep losses.

He cautioned that the real danger lies in confusing paper gains with actual liquidity. “Whether it’s Apple stock or Bitcoin, they only have value if someone else wants to buy them when you want to sell,” he noted.

Some investments, he explained, inherently function better than others in this regard. Publicly traded stocks and mainstream cryptocurrencies are highly liquid, but assets like startup shares or low-cap cryptos often have limited buyers. “Startup stock? Maybe 10 buyers this year. Random crypto tokens? Five real buyers on good days,” he warned.

Gupta shared a simple rule he uses before making any investment decision: “Can I sell this for cash within a week if I need to?” If the answer is no, then he avoids it—calling such positions “expensive digital paperwork.”

His post serves as a reminder to investors to reassess their holdings not just for returns, but for accessibility. When markets panic or personal emergencies strike, the ease of converting assets into cash can mean the difference between stability and stress.

“Think,” Gupta concluded, “which of your investments would be hardest to convert to cash this week? That’s where you’re most vulnerable.” He added that portfolio resilience isn’t about how much you hold—it’s about what you can liquidate when it really counts.