Tom Lee Says Stablecoin Crash on October 10 Triggered Bitcoin Drop

TLDR

• Tom Lee confirmed a stablecoin fell to $0.65 on Oct 10, triggering major crypto liquidations.
• Nearly two million accounts were liquidated in minutes due to a stablecoin pricing glitch.
• Market makers pulled liquidity after the event, causing prolonged selling pressure in crypto.
• Lee predicts Bitcoin could bottom near $77K once market stabilizes post-liquidation cycle.

On October 10, a stablecoin glitch on a single exchange caused a sudden price drop to $0.65, setting off a wave of auto-liquidations across the crypto market. In a recent interview, Tom Lee explained how this technical issue triggered cascading losses, wiped out millions of accounts within minutes, and led to a prolonged Bitcoin and Ethereum selloff—not driven by macro trends, but by a critical software error in the system.

Stablecoin Error Sparks Market-Wide Liquidations

On October 10, a stablecoin on one exchange fell abruptly to $0.65 due to an internal pricing issue, according to Tom Lee. The Fundstrat Global Advisors executive explained in a recent interview that this drop was not a market movement but a code-level error.

The drop activated the ADL, or auto-deleveraging mechanism, which began closing leveraged positions automatically. These liquidations then triggered more liquidations across various trading pairs, spreading across the system within minutes.

Lee confirmed that the event caused over 1.9 million accounts to be liquidated. These mass liquidations overwhelmed market makers and drained liquidity. He emphasized that this wasn’t driven by macroeconomic events or investor sentiment but by a software-related malfunction on a single platform.

Market Makers Forced to De-Risk

Following the incident, major market makers reportedly took heavy losses, damaging their balance sheets. As a result, many began withdrawing liquidity to protect remaining capital, which added further selling pressure across Bitcoin, Ethereum, and other digital assets.

Lee said, “The software bug essentially blew a hole in the capital structure of these key participants.” With liquidity drying up, the reflexive selling behavior intensified and extended for several weeks after the event.

The situation resembled past selloffs, such as the 2022 crypto downturn, where market dynamics created a feedback loop of selling and de-risking.

Bitcoin and Ethereum Fell Below Key Support Levels

Bitcoin and Ethereum both dropped below critical technical support zones after October 10. Lee noted that these declines followed the liquidation event and were not tied to broader macroeconomic shifts like interest rates or inflation.

This decoupling from macro trends was unusual, as digital assets typically follow broader risk asset movements. However, in this case, mechanical factors took precedence, revealing vulnerabilities in the current crypto infrastructure, especially regarding leveraged products and auto-liquidation systems.

Lee also added that with large funds sitting on cash and waiting for clarity, volatility increased. Institutions were unwilling to provide liquidity until the systemic risks were resolved.

Outlook and Expected Bottom

Tom Lee projected that Bitcoin could bottom near $77,000, while Ethereum might reach around $2,500 during this cycle. He referenced past market patterns, where steep declines were often followed by faster recoveries once selling pressure eased.

He pointed out that it usually takes around eight weeks for the market to clear such distortions. After that, with reduced selling pressure and fresh capital re-entering, a sharp recovery may begin.

Lee also mentioned MicroStrategy (NASDAQ: MSTR) as a market indicator, noting that institutions often hedge Bitcoin exposure through its liquid options market. Watching MSTR activity can help investors understand shifts in sentiment.

Despite recent price drops, Lee reiterated Ethereum’s position as a reliable blockchain. He referred to it as a “neutral, 100%-uptime blockchain” and said it remains undervalued relative to Bitcoin in 2025.

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