Tom Lee: October 11th Flash Crash Stemmed From Liquidity Drain, Market Maker Fire Sale
NEW YORK – Fundstrat Global Advisors Managing Partner Tom Lee attributes the sharp market downturn on October 11th to a severe liquidity crisis and subsequent forced selling by market makers attempting to cover substantial losses, according to reporting by Blocktempo News. Lee suggests the event wasn’t a essential shift in crypto’s long-term outlook, but rather a “structural short-circuit” impacting the market’s ability to function smoothly.
The rapid price decline, frequently enough referred to as a “flash crash,” exposed vulnerabilities in the crypto market’s infrastructure, specifically the role of market makers – entities that provide liquidity by quoting buy and sell prices. Lee explains that these market makers faced a ”financial black hole” and were compelled to sell assets aggressively to restore balance sheets, exacerbating the downward spiral. He believes that as these firms rebuild their financial positions, and with potential positive policy developments from the new administration, a significant “retaliatory rebound” in Bitcoin and other crypto assets is possible.
Lee emphasizes that the current situation demands patience from investors, cautioning against misinterpreting temporary market malfunctions as signs of deeper fundamental problems. He anticipates a return of volatility as order books are replenished following the Thanksgiving holiday, advising a prudent approach to allocation and risk management.He previously advised investors to “buy the bottom quickly” amidst the October downturn,and has also warned of a potential burst in the digital asset treasury bubble,citing warning signs like falling NAVs below 1.
