Tom Lee stated that recent drops in crypto prices may be connected to financial problems faced by trading firms.
The chairman of BitMine spoke with CNBC and said that some market makers are facing big financial gaps.
Lee referred to the October 10 fall, when around $20 billion was wiped out of the crypto market in a single day. He said the crash caught some market makers by surprise and left them with less money to trade.
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As a result, they had to cut back their activity and sell more assets, which added to the downward pressure on prices.
He explained that these companies rely on trading activity for their income. When trading volumes dropped after the crash, their revenue and available funds both fell. Therefore, they reduced their trading size and took fewer risks to protect what capital they had left.
Lee said the situation creates a difficult cycle. As losses increase, market makers are forced to sell even more assets to raise cash, which then pushes prices lower again. He described the gradual decline in crypto prices over recent weeks as a result of this ongoing stress.
He also compared market makers in the crypto industry to “central banks”. He stated that they play a role in maintaining market stability and liquidity. When they face financial trouble, the entire system can become fragile.
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