A recent analysis by Vetle Lunde, a senior analyst at K33 Research, reveals that the actual scale of cryptocurrency market liquidations could be significantly underreported. In a report dated August 29, Lunde highlighted that major cryptocurrency exchanges like Binance, Bybit, and OKX have altered their liquidation data reporting methods since 2021. These exchanges now document only one liquidation per second, rather than reporting all liquidation events.
Why Is Liquidation Data Inaccurate?
Lunde pointed out that the current liquidation data provided by exchanges gives a misleading and minimalistic view of the market’s true liquidation volumes over the past three years. This discrepancy could mean that cryptocurrency investors have been making decisions based on incomplete information.
Liquidation data is crucial for assessing risk appetite and understanding leverage ratios on exchanges. However, Lunde’s research indicates that open interest, a metric for the value of ongoing crypto derivatives, does not always match up with liquidation data. This disparity is evident in the research charts.
How Does This Affect Investors?
Liquidation data can also shed light on the effects of sudden market volatility and whether leverage was completely wiped out during major events. Lunde speculated that exchanges might limit data for public relations reasons or to maintain an information advantage for their own trading interests. He suggested that some exchanges could be strategically withholding data to benefit associated investment firms.
Concrete Insights for Investors
Investors can draw valuable conclusions from this information:
- Scrutinize the sources of liquidation data and their reporting methods.
- Stay vigilant about potential data manipulation by exchanges.
- Consider alternative metrics like open interest to gauge market conditions.
- Be cautious of making decisions based solely on reported liquidation data.
At present, crypto data platform Coinglass reported that 56,958 investors were liquidated over the past 24 hours, with total liquidations reaching $156.7 million. Notably, 83% of these liquidations were long positions. However, even this data is sourced from major exchanges, which may not provide the full picture.
In conclusion, while liquidation data is a critical tool for understanding market dynamics, the recent analysis suggests that investors should approach this data with caution and seek additional metrics to make informed decisions.