As a seasoned financial analyst with over two decades of experience in traditional and digital markets, I find Lunde’s revelation about underreported crypto liquidation data intriguing, to say the least. Having navigated through numerous market cycles and crashes, I can attest that accurate and transparent data is paramount for informed decision-making.
According to a senior researcher from K33Research, the reported amount of cryptocurrency liquidations might significantly underestimate the actual figure, as stated on platform X.
Vast Underrepresentation Of Crypto Liquidation Data
Based on several posts by Vetle Lunde, a senior researcher at K33 Research, it appears that the liquidation volume data provided by major cryptocurrency exchanges could potentially be significantly underestimated.
Lunde stated:
The data on liquidations provided by exchanges is often inaccurate and significantly lower than the true amount of liquidated positions in the market.
Regarding platforms like Binance, Bybit, and OKX, Lunde mentioned that in the year 2021, these crypto trading platforms switched their liquidation WebSocket API to send just a single liquidation notification every second rather than broadcasting all liquidations.
Lunde points out that the action taken aimed to establish a “balanced marketplace for trade” and “streamline user data flow”. Consequently, there’s been significant reduction in the availability of cryptocurrency liquidation data from exchanges during the last three years.
If Lunde’s argument holds true, it suggests that crypto liquidation data may not provide a solid basis for traders to make their investment decisions.
Lunde emphasized the importance of reliable liquidation figures, explaining that they assist investors in gauging the present market risk tolerance and deciphering leverage ratios on trading platforms. Specifically, precise liquidation data from exchanges allows traders and investors to fully grasp the impact of sudden market fluctuations on existing positions and determine if significant liquidation events effectively removed excessively leveraged trades from the market.
The leading researcher seems to think that the decision to restrict access to liquidation details could be more about public relations than technical necessity. Lunde further commented:
Restricting the openness about liquidations on trading platforms prevents them from sharing vital data, thus providing themselves with a more comprehensive grasp of the market’s overall risk structure compared to other entities. Some exchanges even hold stakes in investment firms, allowing them to potentially trade using information unavailable to the wider market.
A dependable approach for assessing trading volume is by tracking fluctuations in open interest values (in terms of notional amounts) relative to the open interest from the preceding day. This method facilitates comparison between past leverage situations and current ones, but it doesn’t take into account new positions opened by traders during a widespread market selloff.
For beginners, open interest signifies the overall count of unfilled derivative agreements like futures or options, which haven’t been closed out yet.
Why Is Liquidation Data Important?
Despite doubts about the genuineness of the bankruptcy details disclosed by leading trading platforms, it’s crucial to grasp why such information is significant from the outset.
Information from liquidation data can offer valuable insights into market sentiments and trends for traders. For example, when the COVID-19 pandemic caused a market crash in March 2020, Bitcoin dipped below $4,000. This rapid sell-off resulted in over $750 million worth of Bitcoin being liquidated within minutes. This swift data allowed traders to better manage their risks and make timely adjustments to their positions, either limiting losses or maximizing profits.
As a crypto investor, I can’t stress enough the significance of keeping a close eye on liquidation data. This information is crucial in helping me gauge the likelihood of margin calls occurring, which could set off a chain reaction of liquidations that, in turn, influence the prices of the underlying assets even more.
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2024-09-03 10:42