When Bitcoin (BTC) and Ethereum (ETH) fell through major support levels, the finger-pointing started immediately. Was it macro? Was it fundamentals? According to Fundstrat's Tom Lee, it was neither—it was basically a software glitch that broke the market.
How a Pricing Bug Sparked a Multi-Week Meltdown
Speaking with CNBC on Thursday, Lee laid out what he believes really happened. On October 10, a pricing error on one exchange caused a stablecoin to briefly flash down to $0.65 internally. That triggered an auto-deleveraging event that liquidated close to two million accounts in a cascading wave of forced selling.
Lee called it a "software bug" that effectively blew up the balance sheets of major market makers. When those players got hit, they had no choice but to pull liquidity, de-risk their portfolios, and sell into weakness. The result? A reflexive, multi-week decline that Lee compared to the brutal 2022 crypto washout.
With liquidity drained and leverage still unwinding, Bitcoin and Ethereum have turned into leading indicators for broader risk assets. Large funds are sitting in cash, waiting for markets to stabilize before jumping back in.
Where the Bottom Might Be
Lee thinks the worst of it ends with Bitcoin around $77,000 and Ethereum near $2,500. His reasoning? Past cycles show that recoveries tend to happen faster than the selloffs, thanks to pent-up demand sitting on the sidelines.
He's also watching Strategy (MSTR) closely as a sentiment indicator. Institutions often hedge their Bitcoin exposure by shorting MSTR, which has a highly liquid options market. That makes the stock a useful proxy for how much pain is still left in the system.
Historically, once the selling pressure from damaged market makers clears—usually within eight weeks—crypto markets snap back hard.
Ethereum's Long Game
Despite the chaos, Lee isn't backing away from his Ethereum thesis. Last week, he called it the "neutral, 100%-uptime blockchain" and argued it's still undervalued. He also noted that ETH has been quietly gaining relative strength versus Bitcoin this year, even as both assets have struggled.
The takeaway? Sometimes the explanation for a market crash isn't geopolitical tension or central bank policy. Sometimes it's just a buggy stablecoin price feed that accidentally blows up two million accounts.
