In the volatile world of cryptocurrency, accurate data is crucial for traders to gauge risk and make informed decisions. However, recent findings from K33 Research indicate that the reality of crypto market liquidations might be far more severe than what’s being reported by major exchanges.
The Underreported Reality of Liquidations
According to K33 Research senior analyst Vetle Lunde, major cryptocurrency exchanges like Binance, Bybit, and OKX have significantly altered the way they report liquidation data since 2021. These changes suggest that the data provided by exchanges may vastly underrepresent the actual volume of liquidations occurring in the market.
Lunde’s report reveals that instead of logging all liquidations, exchanges have been recording just one liquidation per second, effectively painting an incomplete and potentially misleading picture of market activity. "Liquidation data from exchanges are bogus and a vast underrepresentation of actual liquidation volumes in the market," Lunde noted.
Implications for Crypto Traders
If true, this revelation means that crypto traders might have been operating with an unclear understanding of market conditions. Liquidation data is typically used as a reliable metric to gauge risk appetite and understand leverage ratios on exchanges. The discrepancies in this data could lead traders to make decisions based on flawed information, potentially exacerbating their risk exposure.
The research also pointed out that open interest, which measures the value of crypto derivatives yet to expire, doesn’t always align with reported liquidation data. This misalignment suggests that liquidation data alone may not fully capture the extent of market leverage or the impact of sudden volatility. For instance, during events like Crypto Black Monday on August 5, when Bitcoin briefly dropped below $50,000, the reported liquidations may not have reflected the full scale of market distress.
Motivations Behind the Data Discrepancy
Lunde speculated that exchanges might be limiting liquidation data for public relations reasons or to maintain an informational advantage. He suggested that some exchanges might have vested interests in investment firms that could trade on this non-public data, thereby gaining a competitive edge over the rest of the market.
While open interest can provide some insights into leverage dynamics, it doesn't account for traders who open new positions during high volatility periods. As Lunde concluded, "For now, liquidation data are mostly erroneous entertainment and not actionable."
Current Data and the Need for Transparency
As of now, platforms like Coinglass report that over 56,958 traders were liquidated in the past 24 hours, with total liquidations reaching $156.7 million. However, this information is still derived from the same potentially flawed data streams provided by major exchanges.
The lack of accurate and transparent liquidation reporting could have serious implications for the cryptocurrency market, potentially leading to misinformed trading strategies and increased market volatility. Until exchanges provide more reliable data, traders may need to exercise additional caution when interpreting liquidation metrics.
Source: Coin Telegraph
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