Crypto Market Liquidation Data: A Misleading Picture?

Crypto Market Liquidation Data May Be Misleading, Says Analyst

Crypto Market Liquidation Data – In a concerning revelation, K33 Research senior analyst Vetle Lunde has raised alarms about the accuracy of crypto market liquidation data provided by major exchanges. According to Lunde’s August 29 report, leading cryptocurrency exchanges, including Binance, Bybit, and OKX, have significantly altered their liquidation reporting methods since 2021, leading to a potential underrepresentation of actual liquidation volumes.

Underreported Liquidation Volumes

Lunde’s research highlights that these exchanges have shifted to reporting one liquidation per second instead of logging all individual liquidations. This change, he argues, creates a “vast underrepresentation” of the true scale of liquidations in the market. “Liquidation data from exchanges are bogus and a vast underrepresentation of actual liquidation volumes in the market,” Lunde asserted, emphasizing that this issue has persisted for the past three years.

If Lunde’s findings are accurate, it would suggest that crypto traders have been operating with a skewed understanding of market dynamics, potentially misjudging the level of risk and leverage involved.

The Importance of Accurate Liquidation Data

Liquidation data is crucial for assessing market risk appetite and understanding leverage ratios on exchanges. Typically, such data offers a clear perspective on how much risk traders are taking on, particularly in volatile market conditions. However, Lunde’s research reveals a disconnect between liquidation data and open interest—an indicator of the value of crypto derivatives yet to expire. This discrepancy suggests that liquidation data alone may not be a reliable measure of market activity, especially during periods of high volatility, such as the Crypto Black Monday event on August 5, when Bitcoin’s price briefly dipped below $50,000.

Potential Motives Behind Data Manipulation

Lunde speculates that exchanges might be deliberately limiting the release of accurate data for public relations reasons or to maintain an informational edge. He even suggests that some exchanges may have vested interests in investment firms that could be trading on non-public information, thereby gaining an unfair advantage over the rest of the market.

The researcher advises that monitoring changes in open interest might offer some insight into leverage flush-outs, as it allows comparisons between past and present leverage events. However, he warns that this method falls short of accounting for traders who open new positions during market turmoil.

“For now, liquidation data are mostly erroneous entertainment and not actionable,” Lunde concluded, casting doubt on the reliability of the information currently available to traders.

Current Market Liquidation Overview

As of the time of writing, Coinglass, a crypto derivative data analysis platform, reports that 56,958 traders have been liquidated over the past 24 hours, resulting in total liquidations of $156.7 million, with 83% of these being long positions. However, this data, too, is derived from the same major exchanges that Lunde’s research criticizes for underreporting.

Cointelegraph has reached out to Binance, Bybit, and OKX for comment but has yet to receive a response. This article will be updated should they provide any further information.

The Road Ahead

As the debate over the accuracy of liquidation data continues, traders and analysts alike must remain vigilant. Understanding the true scale of market liquidations is vital for making informed decisions in the crypto space, particularly as the market continues to grow and evolve. Accurate data is not just a tool for assessing risk—it’s a cornerstone of market transparency and fairness.

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