A prolonged liquidity squeeze within crypto trading networks may be the primary force behind the declines in Bitcoin and Ethereum, according to remarks from Fundstrat’s Tom Lee. His comments follow weeks of downward pressure on major digital assets and renewed questions about the stability of automated liquidation systems that support crypto markets.
A prolonged liquidity squeeze within crypto trading networks may be the primary force behind the declines in Bitcoin and Ethereum, according to remarks from Fundstrat’s Tom Lee. His comments follow weeks of downward pressure on major digital assets and renewed questions about the stability of automated liquidation systems that support crypto markets.
Lee noted that the current downturn appears tied to damage inside a major market maker’s balance sheet—a development he described as severe enough to result in forced selling and sustained weakness across order books.
In an with CNBC, Lee stated that the recent pattern of price declines can be linked to the incident on October 10, when an exchange-specific pricing distortion caused a stablecoin to trade at 65 cents instead of its intended peg momentarily.
He added, noting that the effect spread across other exchanges as liquidations cascaded, reducing trading capacity for multiple firms viewed as core liquidity providers. According to Lee, these participants have spent the past six weeks reducing their balance sheets to re-establish capital buffers. He noted that a similar break in 2022 required roughly eight weeks to complete, suggesting the current adjustment is still underway.
During the interview, Lee added that the drop from above $120,000 after October 6 to the current zone near $86,000 signals the impaired ability of market makers to absorb selling pressure. He argued the decline is unrelated to adoption trends or long-term fundamentals. Instead, he said opportunistic traders may be exerting downward pressure to force additional liquidations while liquidity remains thin.
This comes following earlier comments where Lee stated that the conditions created by the October shock contributed to his expectation of a 50% drawdown, describing the figure as an indicator of weakened market structure rather than a forecast based on broader economic outlook.
In addition to this sentiment, Lee stated that his long-term view of Ethereum has not shifted and pointed to ongoing institutional engagement as evidence that the structural themes surrounding blockchain adoption remain intact.
Even so, he warned that leveraged traders remain the most exposed while liquidation cycles continue. He suggested that market conditions may stabilize six to eight weeks after the initial disruption, creating a possible recovery window around Thanksgiving.
