Tom Lee: Crypto Slump from Market Maker Liquidity Crisis
Tom Lee, chairman of Ether treasury company BitMine and co-founder of Fundstrat, attributes the recent cryptocurrency downturn to a market maker liquidity crisis triggered by the October 10 crash that wiped out $20 billion in liquidations. He warns that balance sheet shortfalls have forced market makers to shrink trading operations and sell assets to free capital, perpetuating downward price pressure. Lee likens market makers to crypto central banks and predicts several more weeks of “unwinding” before liquidity recovers—drawing parallels to a similar eight-week adjustment in 2022. Bitcoin, which peaked near $121,000 pre-crash, now trades around $87,000, mirroring Ethereum’s weak performance. Traders should brace for continued volatility as the market maker liquidity crisis unfolds and assess risk around potential short-term dips before stabilization.
Bearish
News that market makers face balance sheet shortfalls and are forced to reduce trading and liquidate positions suggests continued downward pressure on crypto prices. When liquidity providers retrench, bid-ask spreads widen and trading volumes decline, exacerbating volatility and amplifying sell-offs as seen post-October 10 crash. Historical precedent in late 2022 showed an eight-week unwinding period before market stabilization; we are only six weeks into this cycle. With key liquidity engines impaired, short-term price dips are likely until market maker balance sheets are repaired. In the longer term, restored liquidity could support recovery, but traders should brace for further volatility and monitor market maker activity closely. Overall, this development points to a bearish outlook for the near term.