Fundstrat’s Tom Lee said in a recent interview that last month’s flash event is still reverberating through cryptocurrency markets and that these ripples help explain Bitcoin’s recent decline.
According to Lee, the October 10 shock hurt major market makers (companies that provide trading liquidity), forcing them to halt and tighten their activities.
He said the decline slowed a selloff that continued into November as investors reassessed risks.
Market maker tensions arising from trading glitches
According to the report, Bitcoin was trading around $125,000 on October 6 and hovered around $120,000 a few days later before falling to the mid-$80,000s by November 20.
Lee pointed to a technical glitch at one exchange where the stablecoin briefly lost its $1 peg due to lack of liquidity and internal pricing errors.
The incorrect quote was used for price trading on the exchange, which triggered an automatic liquidation (ADL) event and a series of forced liquidations at several venues.
As a result, some market makers have weakened balance sheets, and their reduced activity has helped sustain selling pressure rather than absorb it.
ETF outflows and macro forces add pressure
The market hit isn’t just structural. According to the report, Bitcoin is down about 23% this month, while ETF outflows are approaching $3 billion, giving traders another reason to back off.
A stronger U.S. dollar and talk of further Federal Reserve tightening also weighed on sentiment, making it difficult for risk assets to sustain gains.
According to technical indicators captured by analysts, the RSI is near 25.47, which many are reading as oversold, while the MACD reading remains in bearish mode. This mix divides traders into bargain hunters and cautious sellers.
Why Traders See Rapid Turnarounds
Lee argued that past cases of forced sales tend to reverse once pressured accounts are exhausted and patient buyers re-enter the market.
He suggested Bitcoin could test $77,000 and Ethereum could fall to $2,500 before a steady rebound. In his view, repairing the market-making system and modifying its code should prevent similar cascades from repeating themselves.
He noted that some funds are holding large cash positions and are awaiting clearer signs that liquidity has recovered.
Narrow window for recovery or further downside
Investors will have a number of things to watch going forward, including the behavior of large funds, ETF flows, and whether exchanges change the way they price-source margin events.
According to the report, in moments of low liquidity, risk can be rapidly amplified if automated systems rely too heavily on internal estimates.
Lee doesn’t think the volatility has yet been resolved, but argues that once the market’s core issues are resolved, a bounce to past highs could outpace the recent decline.
Featured image from Pexels, chart from TradingView
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