Fundstrat co-founder Tom Lee has identified the historic Oct. 10 liquidation event as the root cause of the ongoing crypto market weakness, arguing that the shock crippled market makers and set the stage for weeks of reduced liquidity.
The Oct. 10 Liquidation Cascade: $19 Billion Wiped Out
On Oct. 10, a surprise announcement of 100% tariffs on Chinese imports triggered a catastrophic derivatives-driven wipeout in crypto markets. According to Lee, exchanges forcibly closed approximately $19 billion in leveraged positions within 24 hours—the largest single-day liquidation in crypto history. Bitcoin plunged about 14%, while ethereum and other major assets suffered double-digit losses. The spiral was exacerbated by heavy long positioning, thin order books, and algorithmic engines executing forced selling at increasingly unfavorable prices.
Market Makers: From Stabilizers to Casualties
Speaking on CNBC, Lee emphasized that the Oct. 10 event “really crippled market makers.” These firms normally act as stabilizing forces that absorb order flow and maintain trading depth. However, when a liquidation wave of this magnitude hits, they typically retreat, reduce risk, and shrink their balance sheets—actions that leave prices more vulnerable to continued declines. Lee declined to name specific market makers affected, stating: “I am aware of names, but … I’m not someone who wants to name names.”
Code Error Accelerated the Collapse
Lee also highlighted a technical glitch at an unnamed exchange whose pricing engine briefly misquoted a stablecoin at 65 cents, triggering automated liquidations that cascaded across other venues. He characterized it as a “code error” that accelerated the wipeout and left both traders and market makers with less capital.
Outlook: Still in the Middle of Deleveraging
Drawing parallels to the 2022 liquidation cycle, Lee noted: “It took eight weeks for that to really get fleshed out.” He suggested the current market may still be midway through the deleveraging phase. With crypto prices drifting lower and volumes shrinking, liquidity has tightened further, leaving market makers with fewer tools to stabilize volatility. Lee believes the dominant driver of the market’s current posture remains the Oct. 10 shock and the structural imbalance it exposed.
Until market makers recover their balance sheets and liquidity returns to normal levels, any upside moves may prove temporary. The market, according to Lee, is still healing from the deepest wound it has suffered all year.