The veracity of liquidation data from major cryptocurrency exchanges is being called into question, which may have led market participants to operate under a significantly distorted view of market conditions, suggests a new research report.
On August 29, K33 Research senior analyst Vetle Lunde highlighted significant discrepancies in the reporting of liquidation data by leading cryptocurrency exchanges like Binance, Bybit, and OKX. Since 2021, these platforms have modified their liquidation reporting processes to register only one liquidation per second, regardless of the actual number occurring. This change has potentially led to a substantial underreporting of market liquidations.
Potential Misrepresentation of Market Dynamics
Lunde argues that this alteration in data reporting practices has led to a “vast underrepresentation” of true liquidation volumes in the crypto market. If this assertion holds, it means traders and analysts might be assessing market risk and leverage based on incomplete and inaccurate data.
Liquidation data is crucial for understanding the market’s risk appetite and the extent of leverage utilized by traders. It offers insights into the market’s reaction to price volatility and helps gauge whether leverage has been sufficiently purged during major market corrections. For instance, the Crypto Black Monday event on August 5, when Bitcoin briefly dipped below $50,000, is a scenario where accurate liquidation data would be vital for market analysis.
Speculation on Reasons for Data Limitation
The research suggests that exchanges might limit liquidation data for various reasons, including public relations considerations or to maintain an informational advantage. Some exchanges are linked to investment firms that could potentially benefit from exclusive access to more detailed market data.
While monitoring changes in open interest is suggested as an alternative to track leverage reductions in the market, this method does not capture new positions that may be opened during market downturns. Lunde notes that until more reliable measures are available, liquidation data may serve more as “erroneous entertainment” rather than a tool for substantive market analysis.
Current Market Liquidations
Despite these concerns, data from Coinglass indicates that over the past 24 hours, 56,958 traders have been liquidated, summing up to $156.7 million, with 83% being long positions. However, these figures also rely on reports from major exchanges, which according to Lunde’s research, might not provide a complete picture.
The crypto community and market analysts might need to reconsider how they use exchange-reported data to make informed decisions. As the debate continues, the crypto industry faces calls for more transparency and reliability in how data is reported and used.
The discussion raised by Lunde’s findings points to a need for a reevaluation of market data integrity within the cryptocurrency landscape. Better data oversight and more transparent reporting practices could help in providing a more accurate reflection of market dynamics, essential for both traders and regulatory bodies aiming for a stable and fair trading environment.
