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Bitcoin (CRYPTO: BTC) and Ethereum (CRYPTO: ETH) have descended beneath critical support thresholds, igniting discussions about whether underlying fundamentals are culpable. However, Fundstrat’s Tom Lee argues that the true instigator is a phenomenon that he characterizes as far more mechanical.
What Transpired: In a recent discourse with CNBC, Lee articulated that the cryptocurrency market has been in decline since a catastrophic liquidation event on October 10, which severely impacted major market makers and rendered liquidity perilously scant.
Don’t Overlook: A hypothetical fund backed by Jeff Bezos that promises a 7-9% target yield with monthly dividends—would you consider investing?
According to Lee, a pricing anomaly on a particular exchange saw a stablecoin plummet to $0.65, prompting a cascading auto-deleveraging that liquidated nearly two million accounts.
He indicated that this so-called “software bug” inflicted substantial damage on market makers’ balance sheets, compelling them to mitigate risk, withdraw liquidity, and sell during weakened conditions, thereby engendering a protracted decline reminiscent of the washout in 2022.
With liquidity compromised and leverage unwinding, Bitcoin and Ethereum have effectively emerged as barometers for broader risk assets, remarked Lee, as substantial funds remain idle, awaiting market stabilization.
What Lies Ahead: Lee posits that the washout may find its nadir with Bitcoin hovering around $77,000 and Ethereum near $2,500, suggesting that recoveries in previous cycles have transpired more rapidly than declines owing to pent-up demand from sidelined investors.
He further pinpointed Strategy (NASDAQ: MSTR) as a pivotal sentiment indicator, as institutions frequently hedge substantial BTC positions by shorting MSTR due to its liquid options market.
Historically, following the clearance of selling pressure from beleaguered market makers—typically within an eight-week timeframe—the cryptocurrency markets have demonstrated pronounced rebounds.
Despite the current volatility, Lee reiterated the robustness of Ethereum’s long-term proposition throughout the past week.
He has labeled ETH as the “neutral, 100%-uptime blockchain,” contending that it remains undervalued while quietly gaining relative strength against Bitcoin this year.
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Source link: Finance.yahoo.com.
