Leading Bitcoin Analyst Says Single “Shock Event” Still Haunts BTC As Selloff Deepens
Fundstrat’s co-founder and well‑known Bitcoin bull Tom Lee believes the latest leg down in BTC is not just another routine correction, but the delayed aftershock of a specific technical shock that rippled through the market last month.
In a recent interview, Lee argued that a sudden, largely overlooked “flash event” on October 10 severely strained several key market‑making firms. These are the liquidity providers that stand between buyers and sellers and help keep price swings under control. When they were hit, he said, they scaled back risk, pulled orders, and effectively withdrew some of the cushioning that usually softens volatility.
According to Lee, this retreat by market makers has been a major driver behind Bitcoin’s steep slide in recent weeks, as it created an environment where even modest selling could push prices down more aggressively than usual.
How A Technical Glitch Turned Into A Market‑Wide Shock
Lee traced the origin of the problem to a technical breakdown on a single exchange. On October 10, one of the stablecoins listed there briefly lost its intended $1 peg. This wasn’t the result of a broad confidence crisis in that stablecoin, but rather a combination of thin liquidity and internal pricing errors on the platform.
Because the exchange used that mispriced stablecoin quote as a reference for valuing trades and collateral, it unintentionally triggered a string of Auto‑Deleveraging (ADL) events. ADL is a mechanic built into derivatives platforms that automatically offloads risk when some traders’ positions become too leveraged or insolvent.
Once ADL kicked in based on faulty pricing data, a cascade of forced liquidations spread beyond the initial venue. Leveraged traders who had nothing to do with the original glitch found their positions closed at unfavorable prices, amplifying the sell pressure across multiple platforms.
Market Makers Took The Hit – And Stepped Back
As this chain reaction played out, several large market makers reportedly took substantial balance‑sheet hits. These firms, which usually post tight bid‑ask spreads and deep liquidity, were suddenly more cautious.
Lee explained that after absorbing losses, many of them responded in a predictable way: they widened spreads, reduced order sizes, or stepped aside completely in some trading pairs. The result was a less liquid order book just as volatility spiked.
Instead of soaking up sell orders, these weakened market makers were no longer in a position to provide the usual buffer. That allowed a “slow bleed” of selling to persist into November, with each wave of supply pushing prices lower than it might have in a healthier liquidity environment.
From $125,000 To Mid‑$80,000s: A Brutal Reset
Data cited in the discussion show that Bitcoin was trading around $125,000 on October 6, holding near $120,000 in the days that followed. By November 20, however, BTC had fallen into the mid‑$80,000 range, erasing a large chunk of its prior gains in a matter of weeks.
Lee framed this not as a sign that the long‑term thesis for Bitcoin has broken down, but as evidence of how fragile the current market structure can be when leverage, automated systems, and thin liquidity collide. The October 10 incident, in his view, was the spark that exposed those vulnerabilities.
Structural Stress Meets Macro Headwinds
The downturn has not been purely structural. Lee emphasized that the technical shock landed in a macro environment already stacked against risk assets.
Reports show Bitcoin has declined roughly 23% over the month, while spot Bitcoin exchange‑traded funds have seen nearly $3 billion in net outflows. Those redemptions signal that some institutional and sophisticated retail investors are stepping to the sidelines, at least temporarily.
At the same time, a stronger US dollar and renewed chatter about potential additional tightening from the Federal Reserve have pressured markets more broadly. Higher yields and a firmer dollar tend to pull capital away from speculative assets, including cryptocurrencies, as investors demand higher compensation for risk.
Technical Picture: Oversold, But Still Bearish
On the technical analysis front, recent readings add nuance to the story. The relative strength index (RSI) sits near 25.47, a zone many traders interpret as “oversold.” Historically, such levels often precede at least a short‑term relief rally, as selling becomes exhausted.
Yet the Moving Average Convergence Divergence (MACD) indicator remains firmly in bearish territory, reflecting persistent downward momentum. This clash of signals has split traders into two camps: bargain hunters looking for an attractive entry point, and cautious participants wary that the downtrend has more room to run.
Why Forced Selling Can Flip Into Fast Rebounds
Lee drew on past market episodes to argue that forced selling—that is, liquidation driven by margin calls and ADL rather than voluntary decisions—often ends abruptly once the weakest hands have been flushed out.
When leveraged accounts are liquidated and distressed sellers are cleared, the market can transition from a “no‑bid” environment to one where patient buyers finally step in. If liquidity then improves at the same time, price recoveries can be surprisingly swift, as there are fewer sellers left to oppose the new demand.
In this framework, the key question is not whether Bitcoin has sold off, but whether the majority of the mechanically forced selling has already occurred. Once that phase is over, Lee believes the path of least resistance can shift upward.
Possible Downside Targets Before A Base Forms
Despite his long‑term optimism, Lee did not rule out further near‑term weakness. He suggested that Bitcoin could test the $77,000 area before a durable rebound sets in. For Ether, he flagged the $2,500 region as a possible downside marker.
Those levels, in his view, represent zones where enough fear and capitulation could build to entice sidelined capital back into the market. A move to those targets would likely coincide with clearer evidence that liquidations have slowed and that market makers are rebuilding their positions.
Repairing Market Infrastructure To Prevent Future Cascades
A crucial part of Lee’s outlook hinges on how quickly exchanges and trading venues fix the vulnerabilities exposed by the October 10 event. He expects that repairing market‑making systems and tightening code around pricing mechanisms will be necessary to restore confidence.
One lesson from the incident is the danger of relying too heavily on internal quotes, especially during periods of thin liquidity. When automatic risk systems, such as margin engines and ADL logic, are fed flawed or isolated price data, they can magnify rather than mitigate risk.
Industry participants are likely to revisit how reference prices are sourced, how outlier quotes are filtered, and how circuit breakers are triggered. More robust safeguards could reduce the probability that a localized glitch metastasizes into a market‑wide liquidation wave.
The Role Of ETFs And Institutional Flows
The recent outflows from Bitcoin ETFs add another layer to the story. While these products helped bring a wave of institutional capital into the crypto space, they also created a more direct, visible channel for large sums to leave when sentiment shifts.
When ETF shares are redeemed, providers may need to sell the underlying Bitcoin, putting extra pressure on spot markets at precisely the wrong time. In an environment where market makers are already weakened, this can be especially destabilizing.
On the flip side, once sentiment turns and inflows resume, ETFs can act as powerful demand engines, absorbing available supply and helping price recover more rapidly than in past cycles. The same mechanism that accelerates downside can also accelerate upside.
What Large Funds Are Waiting For
Lee noted that a number of professional funds appear to be sitting on elevated cash positions, reluctant to deploy until they see clear signs that liquidity has normalized. These investors, he said, are closely watching several indicators:
– Whether market makers begin quoting tighter spreads and deeper order books
– The direction and size of ETF flows—do outflows slow, stop, or reverse into inflows?
– Adjustments to how exchanges handle pricing for margin calls and liquidation triggers
Once those pieces start to improve, these funds may feel more comfortable averaging into positions, potentially providing the demand necessary to stabilize prices.
How Traders Can Navigate The Current Environment
For active traders, the current backdrop is a mix of risk and opportunity. On one hand, elevated volatility and fragile liquidity mean that moves can be sharp in both directions. Tight risk management—position sizing, stop‑loss placement, and leverage control—becomes especially important.
On the other hand, oversold readings, combined with the prospect that most forced selling may be behind the market, create conditions where reversals can be sudden. Some traders may choose to scale in gradually rather than attempt to pick the exact bottom, especially near Lee’s suggested downside zones.
Longer‑term investors, meanwhile, may focus less on short‑term price swings and more on whether the structural issues highlighted by the October event are being addressed. For them, the key question is whether the underlying thesis for Bitcoin—scarce digital asset, growing institutional involvement, expanding macro role—remains intact despite recent turbulence.
Volatility Likely To Persist Before A New Uptrend
Lee does not expect volatility to vanish anytime soon. He believes the market still needs time to digest the shock from October, absorb ETF outflows, and adjust to shifting macro expectations. During that process, sharp rallies and equally sharp pullbacks are both on the table.
However, he maintains that once the core problems—particularly the weakened state of some market makers and the technical flaws behind the flash event—are resolved, the eventual move back toward prior highs could unfold faster than the recent decline.
The logic is straightforward: when structural selling pressure disappears, robust demand, a repaired liquidity layer, and returning institutional interest can combine to drive a powerful upside phase. If that scenario plays out, the current correction may be remembered less as the beginning of a long bear market and more as a steep, structurally driven detour on Bitcoin’s larger trend.