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Bitcoin (CRYPTO: BTC) and Ethereum (CRYPTO: ETH) breaking below key support levels has sparked debate over whether fundamentals are to blame — but Fundstrat’s Tom Lee argues the real culprit is far more mechanical.

What Happened: In an interview with CNBC on Thursday, Lee said crypto has been bleeding ever since a massive Oct. 10 liquidation event crippled major market makers and left liquidity dangerously thin.

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According to him, a pricing glitch on one exchange caused a stablecoin to internally wick down to $0.65, which in turn triggered an auto-deleveraging cascade that liquidated nearly two million accounts.

Lee said the so-called “software bug” blew a hole in market makers’ balance sheets, forcing them to de-risk, pull liquidity, and sell into weakness, creating a reflexive, multi-week slide like the 2022 washout.

With liquidity damaged and leverage unwinding, Bitcoin and Ethereum have effectively become leading indicators for broader risk assets, Lee noted, as large funds continue to sit in cash while markets attempt to stabilize.

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What’s Next: Lee expects the washout to bottom with Bitcoin near $77,000 and Ethereum around $2,500, arguing that recoveries in past cycles tend to be faster than the declines due to pent-up sidelined demand.

He also pointed to Strategy (NASDAQ:MSTR) as a key sentiment gauge since institutions often hedge large BTC positions by shorting MSTR due to its highly liquid options market.

Historically, once selling pressure from damaged market makers clears, typically within eight weeks, crypto markets have staged sharp rebounds.

Despite volatility, Lee reiterated Ethereum’s long-term thesis remains solid during the last week.

He recently called ETH the “neutral, 100%-uptime blockchain” and argued it is still undervalued and quietly gaining relative strength versus Bitcoin this year.

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