When cryptocurrency rates fluctuate sharply, analytical services record liquidations of traders' positions worth hundreds of millions of dollars. However, these data may have been distorted over the past few years.
The actual volumes of liquidations of trading positions on crypto exchanges are likely unreliable, and the volumes of this indicator are greatly underestimated, says Vetle Lunde, senior analyst at the crypto market research company K33 Research.
In 2021, a number of major crypto exchanges changed the data they publish on trader liquidations, distorting the relevant information for the past three years. And the current data on liquidations is relatively useless information, Lunge believes.
Liquidations data has historically been a way to gauge traders' risk appetite and better understand leverage ratios on exchanges. According to the analyst, it has been a reliable source for assessing the impact of volatility and the amount of leverage in the market.
“Binance and Bybit have changed the set of trade data they publish to show one liquidation per second instead of reporting all liquidations. OKX also shows a maximum of one order per second, and their data does not reflect the total number,” Lunde said. By limiting the transparency of liquidation data and also hiding important information, exchanges gain a deeper understanding of the overall risk profile than any other organization, Lunde said. And some may even be interested in reselling trade information that the rest of the market does not have. In cryptocurrency markets, a liquidation is when an exchange forcibly closes a trader’s leveraged position due to a partial or complete loss of their initial margin. This occurs when a trader fails to meet the margin requirements of a leveraged position, meaning they do not have enough equity to maintain the open trade. Liquidations occur in both margin and futures trading.