Summary
- Trading firms suffered losses and cut activity, compounding the crypto market’s decline after Oct. 10.
- A technical flaw on Binance caused mass liquidations, prompting a user refund and debate over market manipulation.
- Analysts expect more stress before stabilization, with some blaming natural unwinding and others citing price manipulation.
The cryptocurrency market has experienced sustained downward pressure since Oct. 10, with analysts attributing the decline to liquidity constraints among trading firms and a technical malfunction at a major exchange, says Tom Lee.
Tom Lee of BitMine told CNBC that large trading firms serving as liquidity providers faced significant capital losses during the Oct. 10 market crash. These firms, which help maintain price stability across exchanges, were caught off guard by the sudden capital withdrawal, according to Lee.
When trading firms lose capital, they reduce activity by cutting trading operations, limiting risk exposure, and selling assets to raise cash, Lee stated. This selling pressure creates additional downward force on prices, which in turn can trigger further asset sales, he explained.
Lee described the pattern as a prolonged unwinding process following the crash. He noted that similar events in 2022 required approximately eight weeks to stabilize. The current market is six weeks into the stress cycle, suggesting additional time may be needed before finding steady support, according to Lee.
Tom Lee says October crash a significant blow
A separate technical incident may have intensified the selloff, according to market observers. During the Oct. 10 crash, the stablecoin USDe briefly displayed a price significantly below its intended peg on one exchange while other platforms showed it near its target value. The exchange’s internal oracle system accepted the lower price as valid, triggering automatic liquidations across numerous accounts.
Lee told CNBC the problem stemmed from an automation flaw in which the exchange relied on internal pricing rather than aggregating data from multiple sources. He compared the situation to a margin call executed based on incorrect input data.
The liquidations spread across platforms, affecting nearly two million accounts, many of which had been profitable minutes earlier, according to reports. The exchange did not disclose which firms were impacted by the malfunction.
Screenshots from Oct. 10 and Oct. 11 showed the depeg event occurring on Binance. Following the incident, Binance announced it would refund users who were incorrectly liquidated and stated it had adjusted systems to prevent similar failures.
Lee characterized the glitch as a code error comparable 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 prices lower, claiming the intent is to force out traders who entered positions at higher price levels. Lee expressed agreement with this assessment, sparking debate among market observers.
Critics of this theory argued that such claims emerge regularly during market declines and suggested the selloff reflects natural unwinding after heavy buying during peak prices left many traders overexposed. Others questioned why manipulation theories focus exclusively on price declines rather than considering that markets can fall when participants reassess risk or exit positions during periods of heightened concern.
The debate reflects heightened tension in the cryptocurrency market during the current downturn.
