Crypto Liquidation Data Rigged By Exchanges? Researcher Unveils The Truth
August 30 2024 - 4:30AM
NEWSBTC
Vetle Lunde, a senior analyst at K33 Research, has issued a stark
warning regarding the practices of prominent crypto exchanges
concerning the authenticity of liquidation data. In a post on X,
Lunde outlines how exchanges such as Binance, Bybit, and OKX have
systematically modified their data reporting processes in a way
that he claims significantly distorts the true scale of market
liquidations. Why Crypto Liquidation Data Is Bogus The core of
Lunde’s argument revolves around changes implemented by these
exchanges around mid-2021. For example, both Binance and Bybit
adjusted their liquidation WebSocket API to report only one
liquidation per second, ostensibly to “provide a ‘fair trading
environment’” and “optimize user data stream,” respectively.
Similarly, OKX has implemented a cap, restricting the reporting to
one order per second per contract. Lunde explains that this
modification in the data stream profoundly impacts the market’s
transparency, leading to a scenario where liquidation data, a
critical metric used to assess market health and trader behavior,
is “wildly underreported.” According to Lunde, this has been the
case for the past three years, which has implications not only for
traders but also for the broader financial analysis of the crypto
market. Related Reading: Bitcoin ‘Must Do This Now’, Says Crypto
Analyst Historically, liquidation data has served as a barometer
for the market’s leverage levels and has been instrumental in
understanding how traders react to sudden price movements and
volatility. Accurate liquidation data helps in gauging the market’s
risk appetite and in assessing whether a market downturn has
effectively purged excessive speculative leverage positions. With
this data now being underreported, Lunde suggests that traders and
analysts are flying blind. Lunde speculates on the motives behind
these changes, suggesting that they may be driven by a desire to
control the narrative around market stability and trader success.
He points out that during the first half of 2021, high-profile
liquidations were frequent fodder for media and social media
discourse, often painting a picture of high risk and volatility in
the crypto markets. By limiting the visibility of such events,
exchanges might be trying to cultivate a more stable and
trader-friendly image to attract and retain users. “I am guessing
it’s a PR choice. In H1 2021, liquidation gore was Twitter, media,
and everyone’s bread and butter. Constantly figuring at the top of
liquidation leaderboards is not aligning with a strategy of
attracting as many as possible to trade as much volume as
possible,” Lunde remarks. Related Reading: Crypto Crash: $320
Million Wiped Out As Bitcoin And Ethereum Nosedive Further
complicating matters, Lunde hints at the possibility that exchanges
might be withholding liquidation data to maintain a competitive
edge. “Some exchanges even have interests in investment firms that
may trade on information that the rest of the market does not
have,” the researcher speculates. Despite these significant
challenges in accessing reliable data, Lunde discusses alternative
methods to estimate current liquidation volumes, such as analyzing
shifts in open interest or leveraging historical data to
extrapolate current trends. However, he acknowledges that these
methods have their shortcomings. They often fail to accurately
reflect the changes in market participant behavior over the years
or might overemphasize unusual market events that are not
indicative of broader trends. Concluding his post, Lunde expresses
a deep skepticism about the utility of the currently available
liquidation data. He calls for a return to the levels of
transparency seen in the past, though he pessimistically notes that
such a change is unlikely given current trends. “For now,
liquidation data is mostly erroneous entertainment and not
actionable. I’d welcome a return to past transparency, but I guess
we’ve already crossed the Rubicon,” Lunde concludes. At press time,
BTC traded at $59,540. Featured image created with DALL.E, chart
from TradingView.com
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