Fundstrat’s Tom Lee revealed in a recent interview that last month’s flash event is still resonating across crypto markets and these ripples help explain Bitcoin’s recent decline.
According to Lee, the Oct. 10 shock damaged major market makers – the companies that provide trading liquidity – forcing them to withdraw and tighten their activity.
That pullback, he said, fueled a slow wave of selling that continued through November as investors reassessed risk.
Market maker tension triggered by trading problem
According to reports, Bitcoin was trading at almost $125,000 on October 6 and held at around $120,000 a few days later, before dropping to around $80,000 on November 20.
Lee pointed to a technical fault on an exchange where a stablecoin briefly lost its $1 peg due to low liquidity and internal pricing errors.
This misquotation was used by the exchange to price trades, which triggered self-deleveraging (ADL) events and a chain of forced liquidations between venues.
As a result, several market makers saw their balance sheets weaken, and their reduced activity contributed to maintaining selling pressure rather than absorbing it.
ETF outflows and macroeconomic forces add pressure
The shock to the market was not only structural. Reports show that Bitcoin has fallen around 23% this month, while ETF outflows have approached $3 billion, giving traders another reason to take a step back.
The strengthening U.S. dollar and talk of further tightening by the Federal Reserve also weighed on sentiment, making it harder for risky assets to hold on to gains.
Technical indicators noted by analysts show an RSI around 25.47, which many consider to be oversold, while the MACD figures remain in bearish mode. This combination leaves retailers divided between bargain hunters and cautious sellers.
Why Traders Could See a Quick Recovery
Lee argued that past episodes of forced selling tended to reverse once stressed accounts were depleted and patient buyers re-enter the market.
He suggested that Bitcoin could test $77,000 and Ether could fall to $2,500 before a steady rebound. Repairing market-making systems and code fixes should prevent similar stunts from happening again, he said.
Some funds, he noted, are holding significant cash and waiting for clearer signs that liquidity is returning.
A narrow window of recovery or new disadvantages
Investors should watch several things in the coming days: the behavior of large funds, ETF flows and whether exchanges change how they obtain prices for margin events.
Reports have found that when automated systems rely too heavily on internal quotes during periods of low liquidity, risk can quickly amplify.
Lee believes the volatility is not over, but he also argues that once major market issues are resolved, the bounce back to old highs could preempt the recent decline.
Featured image from Pexels, chart from TradingView
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