Analyst Raises Concerns Over Crypto Exchanges’ Misleading Liquidation Data

Vetle Lunde, senior analyst at K33 Research, expressed concern about the authenticity of liquidation data reported by major crypto exchanges such as Binance, Bybit and OKX.

Lunde highlighted that these exchanges have been systematically changing their data reporting processes since mid-2021, significantly distorting the true scope of liquidations in the market.

The analyst explained that these exchanges have changed their WebSocket APIs to limit the reporting of liquidations to one per second. While the exchanges claim that these changes are intended to optimize the user experience and create a fair trading environment, Lunde argues that they seriously compromise market transparency.

This under-reporting of liquidation data – a key metric for assessing market health and trader behavior – leaves traders and analysts without a clear picture of market leverage and risk.

Lunde speculates that the reasoning behind these changes may have to do with controlling views of market stability, especially in the wake of the much-publicized liquidations of early 2021. By minimizing the visibility of such events, exchanges may be trying to present a more stable and attractive market environment to retain consumers.

It also suggests that some exchanges may be withholding data to gain a competitive advantage, which likely benefits investment firms with access to non-public information.

Despite these concerns, Lunde acknowledged that current methods for estimating liquidation volumes, such as open interest change analysis, are imperfect.

Did you know?

Liquidation data from exchanges are bogus and a vast underrepresentation of actual liquidation volumes in the market.

To provide a “fair trading environment” (Bybit, Sep 2021) and to “optimize user data stream” (Binance, Apr 2021), Binance and Bybit changed their… pic.twitter.com/QeGsSVdT0a

— Vetle Lunde (@VetleLunde) August 29, 2024