Recent findings suggest that the volume of crypto market liquidations could be far greater than what major exchanges have been reporting, potentially leaving traders in the dark about the true extent of market risk.
Altered Liquidation Reports by Exchanges
Vetle Lunde, a senior analyst at K33 Research, stated that leading cryptocurrency exchanges like Binance have significantly altered their reporting practices since 2021, leading to a dramatic underrepresentation of actual liquidation volumes. According to Lunde, these exchanges now report only one liquidation per second, regardless of the number of liquidations occurring within that time. "Liquidation data from exchanges are bogus and a vast underrepresentation of actual liquidation volumes in the market," Lunde said.
Importance of Liquidation Data
This data is critical because it is a tool for assessing market risk and understanding leverage on exchanges. Liquidations occur when traders' positions are forcefully closed due to significant losses, often during periods of high volatility. Accurate reporting of these events is essential for a clear picture of market dynamics, especially for those looking to assess the potential for future volatility.
Reasons and Implications
Lunde also noted that open interest—the value of outstanding crypto derivatives—does not always correlate with liquidation data. This discrepancy suggests that the market may not fully understand how leverage is being used and its impact on market movements. According to Lunde, exchanges may limit this data to maintain an informational advantage or for public relations reasons, particularly if they have ties to investment firms that could benefit from more accurate data. The implications of these findings are significant. If traders are operating based on incomplete or inaccurate data, their ability to manage risk and make informed decisions is severely compromised.
The K33 Research findings raise important questions about the reliability of the data that traders rely on for strategy formulation. Underreporting liquidation volumes can lead to misjudging market risks and erode confidence in decision-making.
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