Key Takeaways
- •Tom Lee believes the recent crypto crash was triggered by a technical pricing glitch, not market sentiment.
- •A brief stablecoin mispricing allegedly caused automated liquidations affecting roughly 2 million accounts.
- •Liquidity vanished as market makers pulled back, extending the decline long after the initial error.
That is the theory proposed by Fundstrat’s Research Director Tom Lee, who believes the downturn didn’t behave like a normal correction at all.
A Meltdown Born From a Pricing Fluke?
Lee argues that what looked like a broad rejection of digital assets was, in fact, the fallout from a one-off technical malfunction. Somewhere around October 10, a stablecoin on one trading venue briefly lost its peg. Instead of hovering near $1, it printed $0.65, not because its issuer imploded — but because liquidity on that specific trading pair had temporarily dried up.
This harmless-looking error was anything but harmless.
Automated Systems Did the Rest
Lee claims the erroneous price fed directly into the exchange’s internal Automatic Deleveraging engine, which took the false number as reality and began liquidating positions automatically. In minutes, profitable traders became insolvent on paper. The shock spread beyond the original exchange as liquidation cascades ignited elsewhere.
His estimate: roughly 2 million crypto accounts were forcibly closed during that chain reaction.
Binance and USDe Pointed to as the Epicenter
While the exchange was not formally named in the broadcast, Lee indicated that the event originated from Binance’s USDe market, involving the USDe stablecoin issued by Ethena Labs. The momentary liquidity void in that trading pair, he says, acted like the spark that ignited dry tinder.
The Real Damage Came Later
According to Lee, the true toll wasn’t the initial drop — it was the aftermath. Market makers, who act as liquidity architects for the entire crypto landscape, were hit hard. Once their positions were damaged by the price error, they were forced to de-risk aggressively to stabilize their books.
With liquidity thinned out dramatically, prices kept sliding for weeks even though the spark itself lasted only seconds.
A Crash Without a Villain
Lee’s view flips the typical narrative of market panic on its head: the sell-off wasn’t driven by psychology, but by mechanics. In his interpretation, the decline reflects the vulnerability of a system where automated trading reacts faster than human judgment — and where a pricing hiccup can behave like a crisis trigger.
Whether the analyst is correct or not, his perspective raises an uncomfortable question for the industry: Is crypto prepared for a world where one mistake on one exchange can liquidate the entire market?