Fundstrat’s Tom Lee revealed in a recent interview that last month’s flash event is still reverberating through the crypto market, and its ripples are helping to explain Bitcoin’s recent decline.
Lee said the October 10 shock damaged major market makers (companies that provide trading liquidity), forcing them to scale back and tighten their activities.
He said the pullback accelerated a slow trickle of selling that continued into November as investors reassessed risks.
Market Maker Stress Caused by Trading Glitches
According to reports, Bitcoin traded around $125,000 on October 6, hovered around $120,000 a few days later, and fell to the mid-$80,000 range by November 20.
Lee pointed to technical flaws at one exchange that caused the stablecoin to temporarily lose its $1 peg due to thin liquidity and internal pricing errors.
This incorrect quote was used by exchanges to price trades, triggering automatic deleveraging (ADL) events and a chain of forced liquidations across venues.
As a result, some market makers found their balance sheets weakening, with reduced activity sustaining selling pressure rather than absorbing it.
ETF outflows and macro forces add pressure
The blow to the market is not just structural. Bitcoin is down about 23% this month, with ETF outflows approaching $3 billion, giving traders another reason to exit, according to the report.
A strong dollar and talk of further tightening by the U.S. Federal Reserve also weighed on sentiment, making it difficult for risk assets to sustain gains.
The technical indicators picked up by analysts are the RSI showing around 25.47, which many consider oversold, but the MACD reading is still in bearish mode. This combination divides traders into bargain hunters and cautious sellers.
Why traders expect a quick turnaround
Lee argued that past episodes of forced sales tend to reverse as pressured accounts are exhausted and patient buyers re-enter the market.
He suggested that Bitcoin could test $77,000 and Ether could fall toward $2,500 before a steady rebound. In his view, fixing the market-making system and fixing the code should prevent similar cycles from happening again.
He said some funds hold large cash positions and are waiting for clear signs that liquidity will return.
Little room for recovery or further decline
Investors will need to keep an eye on several things in the coming days, including trends in large funds, ETF flows, and whether exchanges will change the way they price margin events.
Risks can escalate quickly if automated systems rely too heavily on internal quotes during moments of low liquidity, according to the report.
Lee believes the volatility is not over yet, but also argues that a rebound to historic highs ahead of the recent sell-off could be hasty once the market's core issues are resolved.
Featured images from Pexels, charts from TradingView
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