Tom Lee, co-founder and head of research at Fundstrat Global Advisors, warned in a CNBC interview that the ongoing weakness in cryptocurrency markets is not a random downturn but a direct aftermath of the historic Oct. 10 liquidation event. The derivatives-driven wipeout, triggered by an unexpected announcement of 100% tariffs on Chinese imports, erased tens of billions of dollars in digital asset value in less than a day and, more critically, dealt a lasting blow to the very firms that provide market liquidity.
$19 Billion in Leveraged Positions Wiped Out in a Day
According to Lee, the Oct. 10 cascade was the largest single-day liquidation in crypto history, with approximately $19 billion in leveraged positions forcibly closed across exchanges. Bitcoin dropped roughly 14% during the main move, while Ethereum and other major assets suffered double-digit losses. Lee attributed the severity to the market’s heavy long positioning, thin order books, and algorithmic engines that executed forced selling at increasingly unfavorable prices.
“That event really crippled market makers,” Lee stressed. In crypto, market makers act as stabilizing forces that absorb order flow and maintain trading depth. When hit by a liquidation wave of this magnitude, these firms typically retreat, reduce risk, and shrink their balance sheets—actions that leave prices more vulnerable to continued declines, he explained.
Exchange Code Error: Stablecoin Misquoted at $0.65 Fueled Panic
Lee also revealed a little-known detail: a “code error” in the pricing engine of an unnamed exchange briefly quoted a stablecoin at just 65 cents, triggering automated liquidations that quickly spread to other venues. He characterized it as a “coding mistake” that accelerated the washout, leaving both traders and market makers with less capital. While declining to name the exchange or specific market makers, Lee said, “I am aware of names, but … I’m not someone who wants to name names.”
Comparing to 2022: Deleveraging May Be Only Halfway Through
Lee drew a parallel to a similar liquidation cycle in 2022, noting that “it took eight weeks for that to really get fleshed out.” Since the Oct. 10 event, only a few weeks have passed, suggesting the market may still be midway through the deleveraging phase. With Bitcoin still far below its early-October highs, Lee argued that the dominant driver of the market’s current posture remains the Oct. 10 shock and the structural imbalance it exposed.
As crypto prices have drifted lower, shrinking volumes have further tightened liquidity, leaving market makers with fewer tools to stabilize volatility. Lee predicts that unless liquidity significantly recovers, the crypto market’s sluggish performance could persist for several more weeks.