Cryptocurrency Market Faces Downward Pressure After October 10 Crash
The cryptocurrency market has been experiencing a decline since October 10, with analysts attributing the drop to liquidity shortages at trading firms and a technical glitch at a major exchange. According to Tom Lee, a renowned expert in the field, major trading firms acting as liquidity providers suffered significant capital losses during the October 10 market crash. These companies, which help maintain price stability across exchanges, were caught off guard by the sudden capital withdrawal.
When trading firms lose capital, they slow down their activity by limiting their trades, limiting risk, and selling assets to raise cash, Lee explained. This selling pressure creates additional downward pressure on prices, which in turn may trigger further asset sales. Lee described the pattern as a prolonged unwinding process after the crash, noting that similar events in 2022 took about eight weeks to stabilize. The current market is six weeks into the stress cycle, suggesting that more time may be needed before stable support is found.
The Impact of Technical Glitches on the Market
A separate technical incident may have intensified the selloff, according to market observers. During the October 10 crash, the stablecoin USDe briefly displayed a price well below its intended peg on one exchange, while it displayed close to its target value on other platforms. The exchange’s internal oracle system accepted the lower price as valid and triggered automatic liquidations on numerous accounts. Lee told CNBC that the problem was due to an automation error where the exchange relied on internal prices instead of aggregating data from multiple sources.
The liquidations were spread across multiple platforms and reportedly affected nearly two million accounts, many of which had been profitable just minutes before. The exchange did not disclose which companies were affected by the disruption. Screenshots from October 10th and 11th showed the Depeg event on Binance. Following the incident, Binance announced that it would issue refunds to users who were mistakenly liquidated and said it had adjusted systems to prevent similar outages.
Market Manipulation Debate
Mike Alfred, a Bitcoin investor, explained on social media that market participants are using futures and derivatives to drive down prices, claiming the intention is to squeeze out traders who have taken positions at higher price levels. Lee agreed with this assessment, sparking debate among market observers. Critics of this theory argued that such claims appear regularly during market declines and suggested that the selloff reflected a natural fading after heavy buying during peak prices left many traders overvalued.
Others questioned why manipulation theories focus exclusively on price declines and do not take into account that markets can fall when participants reassess risk or exit positions during times of heightened concern. The debate reflects heightened tension in the cryptocurrency market during the current downturn. For more information on the current state of the cryptocurrency market and Tom Lee’s warnings, visit https://crypto.news/tom-lee-warns-of-liquidity-crunch-after-oct-10-crash/
