Market Maker Liquidity Crisis Drives Crypto Plunge
Tom Lee, chairman of Bitmine, warns that a market maker liquidity crisis triggered by a mid-October forced liquidation event is intensifying selling pressure across crypto markets. The crunch drained funds from key market makers, leading to reduced trading volume, wider bid-ask spreads, higher volatility and lower depth for large orders. Now in its sixth week, the crisis mirrors a similar 2022 event that took eight weeks to resolve. Recovery hinges on market makers rebuilding capital and confidence. Traders should monitor tightening spreads, rising volumes and the return of institutional activity as signals of improvement. During the crunch, using limit orders and avoiding large market orders can help mitigate costs and slippage. Overall, this market maker liquidity crisis reflects a temporary condition rather than a fundamental breakdown, and patience is essential as the market self-corrects.
Bearish
The market maker liquidity crisis heightens selling pressure, reduces market depth and widens spreads—factors that typically drive prices down in the short term. Similar to the 2022 liquidity crunch, forced liquidations and capital constraints among market makers exacerbate volatility and hinder large trades, reinforcing bearish sentiment. Although recovery is expected within weeks as capital is rebuilt, ongoing risk aversion may persist until clear signs of tightened spreads, rising volumes and institutional return materialize. Consequently, traders are likely to face continued downward pressure before normalization.