Tom Lee speculates wounded market makers behind crypto crunch

The caller downward unit connected the cryptocurrency marketplace could beryllium the effect of heavy holes successful the equilibrium sheets of marketplace makers, according to Tom Lee, president of Ether treasury institution BitMine.

Speaking with CNBC connected Thursday, Lee suggested that the Oct. 10 marketplace crash, which saw a grounds $20 cardinal liquidated from the market, yet caught immoderate marketplace makers off-guard, causing terrible liquidity issues.

With little superior to operate, combined with reduced superior from traders arsenic their superior root of revenue, it’s a pugnacious clip for marketplace makers, Lee said. As a result, this has besides led them to shrink their “balance expanse further” successful a bid to escaped up much capital.

“And if they’ve got a spread successful their equilibrium expanse that they request to rise capital, they request to reflexively trim their equilibrium sheet, trim trading. And if prices fall, they’ve got to past bash much selling. So I deliberation that this drip that’s been taking spot for the past fewer weeks successful crypto reflects this marketplace shaper crippling,” helium said.  

Tom Lee offers his existent work connected the market. Source: CNBC

Lee, who is besides the co-founder of Fundstrat, likened the value of crypto marketplace makers to “central banks” and suggested that the marketplace whitethorn look much symptom for a fewer much weeks until the marketplace makers’ liquidity issues are resolved.   

“Today’s banal marketplace looks a batch similar an echo of what happened connected October 10th. But connected October 10th, that liquidation was truthful large [...] it truly crippled marketplace makers,” helium said, adding:  

“And marketplace makers are captious successful crypto due to the fact that they supply liquidity. I mean, they enactment astir arsenic the cardinal slope successful crypto.”

Bitcoin (BTC) was priced astatine implicit $121,000 earlier the Oct. 10 crash, and has since declined back to $86,900, with astir of the marketplace pursuing a akin pattern.  

Related: Bitcoin whale enactment connected way for its biggest week this year: Analysts

Lee said determination whitethorn beryllium different mates of weeks of marketplace shaper unwinding earlier the marketplace starts to heal, arsenic helium pointed to a akin occurrence from 2022: 

“And truthful successful 2022, it took 8 weeks for that to truly get flushed out. We’re lone six weeks into it. So I benignant of concur. I deliberation crypto, Bitcoin and Ethereum are successful immoderate ways a starring indicator for equities due to the fact that of that unwind. And present this benignant of limping and weakened liquidity.”

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