As a seasoned crypto investor with over a decade of experience navigating this volatile market, I can’t help but feel a sense of deja vu when reading Vetle Lunde’s latest findings about the authenticity of liquidation data from prominent exchanges. The fact that these practices have been going on for years, seemingly unchecked, is not only troubling but also indicative of a wider issue in our industry: transparency.
Vetle Lunde, an analyst at K33 Research, has raised concerns about the integrity of liquidation data provided by popular cryptocurrency exchanges like Binance, Bybit, and OKX. In a recent post on X, Lunde explains that these exchanges have allegedly manipulated their reporting methods to such an extent that it greatly exaggerates the actual extent of market liquidations.
Why Crypto Liquidation Data Is Bogus
Lunde’s central point centers on modifications made by these trading platforms around June 2021. For instance, Binance and Bybit revised their liquidation WebSocket API to broadcast only one liquidation every second, supposedly for “ensuring a ‘fair trading atmosphere'” and “enhancing user data flow efficiency,” respectively. Likewise, OKX introduced a limit, capping the reporting to one order per second per contract.
In simpler terms, Lunde points out that a change in the data flow significantly affects the clarity of the market, resulting in a situation where crucial information about liquidation, a key indicator of market stability and trader actions, is significantly underestimated. This trend, he claims, has persisted for the last three years, which raises concerns not just for traders but also for comprehensive analyses of the cryptocurrency market as a whole.
As an analyst, I’ve found historically that liquidation data acts as a crucial gauge for the market’s leverage levels, providing insights into how traders respond to abrupt price fluctuations and market volatility. Precise liquidation data is invaluable in determining the market’s risk tolerance and whether a market decline has successfully cleansed excessive speculative positions. However, with this data currently being underreported, as per Lunde’s suggestion, it seems that traders and analysts are navigating blindly.
Lunde muses about the reasons behind these alterations, implying they could stem from an ambition to manage the storyline concerning market stability and traders’ prosperity. He notes that during the early months of 2021, sensational liquidation incidents were common topics in media and social media discussions, frequently portraying crypto markets as risky and volatile. By reducing the exposure of such occurrences, trading platforms might be attempting to create a more stable and welcoming environment for traders to attract and keep users.
“Lunde suggests it might be a public relations decision. In the first half of 2021, liquidations on Twitter and in the media were prevalent, essentially becoming everyone’s main focus. However, consistently ranking high on liquidation leaderboards doesn’t seem to align with a strategy aimed at encouraging as many people as possible to trade as much volume as possible,” (paraphrased statement)
It seems that Lunde suggests an additional layer of complexity, implying that certain trading platforms might be concealing their liquidation data to gain a strategic advantage over others. In other words, he suspects that some exchanges could possess inside information from their affiliated investment firms, which the broader market does not have access to.
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.
Wrapping up his discussion, Lunde voiced strong doubts regarding the practicality of the existing liquidation data. He advocates for restoring the high transparency levels observed earlier, although he regrettably predicts this may not happen due to prevailing tendencies.
Currently, the information on liquidation is more often incorrect and best used for amusement rather than practical decision-making, laments Lunde. He expresses hope for a restoration of transparency as it was before, but regrets that we might have passed a point of no return in this matter.
At press time, BTC traded at $59,540.
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2024-08-30 12:58