Tom Lee, research director at Fundstrat Global Advisors, suggested that the recent decline in the crypto market could be due to “mechanical errors” rather than market dynamics.
The prominent market strategist appeared on CNBC’s “The Exchange” show and took stock of the recent plunge in the crypto market. Lee said the market crash was caused by a technical chain reaction that occurred around October 10, leading to the liquidation of about 2 million accounts.
According to Lee, the crash was caused by a pricing error on an anonymous cryptocurrency exchange. The stablecoin’s price, normally $1, temporarily fell to $0.65 due to a lack of liquidity on exchanges.
According to Lee, the crash was caused by a pricing error on an anonymous cryptocurrency exchange. The stablecoin’s price, normally $1, temporarily fell to $0.65 due to a lack of liquidity on exchanges.
The error is said to have occurred on the Binance exchange, and the asset in question was the USDe stablecoin issued by Ethena Labs. The lack of liquidity in the USDe pair on Binance was the spark that started this chain reaction.
This price divergence triggered the exchange’s automatic deleveraging (ADL) mechanism. Lee explained that the system executed trades based on this erroneous internal price, resulting in a chain reaction in which approximately 2 million crypto accounts were liquidated, including accounts that had been making profits until minutes before.
Tom Lee claimed that the incident had a devastating impact on market makers, who act as the “central bank” of the cryptocurrency ecosystem. He noted that market makers have been forced to reduce liquidity to close the gap in their balance sheets. “As prices have fallen, they have been forced to sell more. The gradual decline we have seen over the past few weeks reflects this ‘catastrophic’ state of market makers.”
*This is not investment advice.
Discover more from Earlybirds Invest
Subscribe to get the latest posts sent to your email.
