Fundstrat's Tom Lee says the crypto market's continued weakness since mid-October can be traced directly to the unprecedented Oct. 10 liquidation cascade, a derivatives-driven wipeout that followed a surprise announcement of 100% tariffs on Chinese imports.
Market Makers Crippled
Lee told CNBC viewers that the Oct. 10 shock "really crippled market makers," noting that their role in crypto is similar to a stabilizing force that absorbs order flow and maintains trading depth. When a liquidation wave of that size hits, these firms often retreat, reduce risk, and shrink their balance sheets—actions that leave prices more vulnerable to continued declines. The Oct. 10 event was the largest single-day liquidation in crypto history, with roughly $19 billion in leveraged positions forcibly closed across exchanges.
Bitcoin fell about 14% in the main move, while Ethereum and other major assets posted double-digit losses. The liquidation spiral was intensified by the market's heavy long positioning, thin order books, and algorithmic engines that executed forced selling at increasingly unfavorable prices.
Code Error Accelerated Wipeout
Lee also highlighted a specific breakdown inside one unnamed exchange's pricing engine that briefly misquoted a stablecoin at 65 cents, triggering automated liquidations that rippled across other venues. He characterized it as a "code error" that accelerated the wipeout and left both traders and market makers with less capital. He didn't name the specific trading platform or any of the market makers that felt the pain, saying "I am aware of names, but … I'm not someone who wants to name names."
Comparison to 2022 and Outlook
Lee pointed to the reflexive structure as the main reason the downtrend has extended into November. "It took eight weeks for that to really get fleshed out" during a similar liquidation cycle in 2022, he said, suggesting the market may still be midway through the deleveraging phase. As crypto prices have drifted lower, Lee said shrinking volumes have tightened liquidity further, leaving market makers with fewer tools to stabilize volatility. With bitcoin still far below its early-October highs, he argues the dominant driver of the market's current posture remains the Oct. 10 shock and the structural imbalance it exposed.