Vetle Lunde, a senior analyst at K33 Research, has issued a stark warning regarding the practices of distinguished crypto exchanges regarding the authenticity of liquidation data. In a post on X, Lunde outlines how exchanges equivalent to 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 instance, each Binance and Bybit adjusted their liquidation WebSocket API to report just 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 1 order per second per contract.
Lunde explains that this modification in the info stream profoundly impacts the market’s transparency, resulting in a scenario where liquidation data, a critical metric used to evaluate market health and trader behavior, is “wildly underreported.” Based on Lunde, this has been the case for the past three years, which has implications not just for traders but additionally for the broader financial evaluation of the crypto market.
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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 could be driven by a desire to regulate the narrative around market stability and trader success. He points out that throughout the first half of 2021, high-profile liquidations were frequent fodder for media and social media discourse, often painting an image of high risk and volatility within the crypto markets. By limiting the visibility of such events, exchanges is perhaps attempting to cultivate a more stable and trader-friendly image to draw and retain users.
Each day Bitcoin Perpetual Liquidations | Source: X @VetleLunde
“I’m guessing it’s a PR alternative. In H1 2021, liquidation gore was Twitter, media, and everybody’s bread and butter. Continuously figuring at the highest of liquidation leaderboards will not be aligning with a technique of attracting as many as possible to trade as much volume as possible,” Lunde remarks.
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Further complicating matters, Lunde hints at the likelihood that exchanges is perhaps withholding liquidation data to take care of a competitive edge. “Some exchanges even have interests in investment firms which will trade on information that the remaining of the market doesn’t have,” the researcher speculates.
Despite these significant challenges in accessing reliable data, Lunde discusses alternative methods to estimate current liquidation volumes, equivalent to analyzing shifts in open interest or leveraging historical data to extrapolate current trends. Nevertheless, he acknowledges that these methods have their shortcomings. They often fail to accurately reflect the changes in market participant behavior over time or might overemphasize unusual market events that will not be indicative of broader trends.
Concluding his post, Lunde expresses a deep skepticism concerning the utility of the currently available liquidation data. He calls for a return to the degrees of transparency seen up to now, though he pessimistically notes that such a change is unlikely given current trends.
“For now, liquidation data is generally erroneous entertainment and never actionable. I’d welcome a return to past transparency, but I suppose we’ve already crossed the Rubicon,” Lunde concludes.
At press time, BTC traded at $59,540.
Bitcoin price stays below the 200-day EMA, 1-day chart | Source: BTCUSDT on TradingView.com
Featured image created with DALL.E, chart from TradingView.com