The recent downturn in the crypto market wasn’t a typical crash, but was instead caused by a simmering liquidity crisis among major market makers. According to market analyst and BitMine CEO Tom Lee, these firms ran into financial trouble following the crash on October 10, and the effects are still being felt today.
Market Makers in Trouble #
In an interview with CNBC, Lee highlighted that on October 10, over €16 billion in positions were liquidated across the crypto market. During that single day, the price of Bitcoin plummeted from $122,500 to $110,000.
This triggered the largest liquidation wave in crypto history and caught many market makers by surprise, Lee said.
Market makers are professional traders who, as their name suggests, “make the market.” They simultaneously place large buy and sell orders, buying slightly cheaper than they sell. They profit from the spread and ensure there is always enough supply and demand on exchanges to create a market without significant price swings. Tom Lee explains:
“Market makers are crucial in crypto because they provide liquidity. They are almost the central banks of the crypto market.”
A Vicious Cycle #
The massive blow on October 10 put many market makers in financial distress, according to Lee. The price drop created a shortage of trading capital, and at the same time, trading activity on exchanges declined, causing their revenues to fall. This created a vicious cycle, Lee says:
“If they have a hole in their balance sheet for which they need to raise capital, they have to reflexively shrink their balance sheet and trade less. And if prices fall, they then have to sell even more.”
This constant, drip-feeding of sell pressure is, according to Lee, the reason for the persistent price declines of recent weeks.
A Matter of Weeks? #
According to Lee, it could take several more weeks for the market makers to recover and halt their massive selling. He points to 2022, when a similar situation occurred:
“In 2022, it took eight weeks before it was really resolved. We are only six weeks into it now.”
So, the coming weeks will have to show if he is right. However, Lee noted just a few days ago that he still believes the Bitcoin price could reach a new all-time high before the end of 2025.