Researchers Suggest Crypto Liquidations Data From Exchanges Could be Underreported

A senior researcher from K33Research highlighted that the volume of crypto liquidations from exchanges might be significantly underreported.

Challenges with Crypto Liquidation Data Reporting

According to Vetle Lunde, a senior researcher at K33 Research, data on liquidation volumes provided by major digital assets exchanges could be inaccurately represented.

Lunde mentioned that exchanges like Binance, Bybit, and OKX modified their liquidation WebSocket API in 2021 to limit the reporting of liquidations, resulting in a potential underrepresentation of actual liquidation volumes in the market.

Accurate liquidation data is crucial for investors to gauge market risk appetite and leverage ratios on exchanges, aiding them in comprehending the impact of sudden market volatility on open positions and cleansing the market of excessive leveraged trades during significant liquidation events.

Lunde suggested that the decision to limit liquidation data transparency could be a strategic move by exchanges to withhold valuable information, providing them with a more comprehensive understanding of the market’s risk profile compared to other entities.

One method to measure liquidation volume effectively is by analyzing changes in open interest in notional terms compared to the previous day. Although this method helps juxtapose past leverage events with current ones, it may not consider new positions opened by traders during market-wide selloffs.

Significance of Liquidation Data

While concerns exist about the accuracy of liquidation data shared by top exchanges, understanding this data is essential due to its impact on market sentiment and trends. For instance, during the March 2020 crash induced by COVID-19, Bitcoin plummeted below $4,000, resulting in $750 million worth of BTC being liquidated in minutes, enabling traders to manage risks effectively.

Leverage trades in the crypto market emphasize the importance of liquidation data as it helps traders anticipate margin calls that can trigger further liquidations, influencing asset prices.