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According to a researcher, the amount of cryptocurrency market liquidations could be much worse than the data from major exchanges suggests. On August 29, K33 Research senior analyst Vetle Lunde reported that major cryptocurrency exchanges like Binance, Bybit, and OKX have made significant changes in reporting liquidation data since 2021. These changes mean that exchanges record one liquidation per second instead of reporting all liquidations.
What Is Happening in the Futures Market?
Analyst Lunde expressed that the liquidation data from exchanges is misleading and significantly underrepresents the actual liquidation volumes in the market over the past three years. If true, this means that cryptocurrency investors might have been operating based on a blurred picture of the market.
Liquidation data is generally a clear way to measure risk appetite and is used to better understand leverage ratios on exchanges. The research noted that open interest, a measure of the value of ongoing crypto derivatives, does not always correlate with liquidation data, as evidenced in the chart below.
Additionally, liquidation data can be used to better understand the impact of sudden volatility and whether leverage was completely wiped out during major liquidation events like Black Monday on August 5, when Bitcoin’s price briefly fell below $50,000. The researcher speculated that exchanges might limit data for PR evaluations or maintain an information advantage for their own interests:
“Some exchanges even have interests in investment firms that can trade with information the rest of the market does not have.”
Details on the Subject
He said that tracking changes in open interest could help measure leverage unwinding because it can compare past leverage events with current ones, but it does not account for investors opening new positions amid the chaos:
“For now, liquidation data is mostly faulty entertainment and not actionable.”
At the time of writing, the crypto data analysis platform Coinglass reported that 56,958 investors were liquidated in the last 24 hours, with total liquidations amounting to $156.7 million, 83% of which were long positions. However, this information is also obtained from data streams from major exchanges.
