Summary
- Trading firms suffered losses and reduced activity, further exacerbating the crypto market’s decline after October 10.
- A technical glitch at Binance caused mass liquidations, prompting user refunds and discussion of market manipulation.
- Analysts expect more tension before stabilization occurs, with some blaming a natural recovery while others cite price manipulation.
The cryptocurrency market has experienced sustained downward pressure since October 10, with analysts attributing the decline to liquidity constraints at trading firms and a technical glitch at a major exchange, says Tom Lee.
BitMine’s Tom Lee told CNBC that major trading firms that acted as liquidity providers during the October 10 market crash suffered significant capital losses. These companies, which help maintain price stability on the stock exchanges, were blindsided by the sudden capital withdrawal. according to to Lee.
When trading firms lose capital, they reduce activity by curtailing trading activities, limiting risk exposure and selling assets to raise cash, Lee said. This selling pressure puts additional downward pressure on prices, which in turn could lead to further asset sales, he explains.
Lee described the pattern as a lengthy unwinding process after the crash. He noted that similar events in 2022 took about eight weeks to stabilize. The current market has been in the stress cycle for six weeks, indicating that additional time may be needed before stable support is found, Lee said.
Tom Lee says the October crash was a big blow
According to market observers, a separate technical incident may have intensified the sell-off. During the October 10 crash, the stablecoin USDe on one exchange briefly showed a price significantly lower than its target price, while other platforms showed it near its target value. The exchange’s internal oracle system accepted the lower price as valid, leading to automatic liquidations of numerous accounts.
Lee told CNBC that the problem stemmed from an automation error where the exchange relied on internal pricing instead of merging data from multiple sources. He compared the situation to a margin call that was made based on incorrect input data.
The liquidations spread across platforms, affecting nearly two million accounts, many of which were reported to have been profitable just minutes earlier. The exchange did not reveal which companies were affected by the outage.
Screenshots from October 10 and 11 showed the depeg event taking place on Binance. Following the incident, Binance announced that it would refund users who were wrongly liquidated and stated that it had adjusted systems to prevent similar failures.
Lee characterized the glitch as a code error similar to past structural failures in other markets, where a single problem triggers cascading effects.
Mike Alfred, a Bitcoin investor, stated on social media that market participants are using futures and derivatives to drive down prices, claiming the intention is to cut out traders who have entered positions at higher price levels. Lee agreed with this assessment, which sparked debate among market observers.
Critics of this theory argued that such claims emerge regularly during market downturns and suggested that the sell-off reflects a natural unwind after heavy buying during peak prices left many traders overexposed. Others wondered why manipulation theories focus solely on price declines instead of considering that markets can fall when participants reassess their risks or exit their positions during periods of heightened concern.
The debate reflects the increased tension in the cryptocurrency market during the current recession.
