Tom Lee Describes Bitcoin's Sell-off as ‘Market Maker Distress’

Tom Lee Describes Bitcoin's Sell-off as ‘Market Maker Distress’ – Here’s What He Foresees!

In the current downturn, Tom Lee of Fundstrat believes that Bitcoin's recent decline is mainly due to market makers and large sellers. He sees signs of a possible rebound in the near future, although uncertainty surrounds the potential catalysts for recovery, such as interest rate cuts from the Federal Reserve.

Key Takeaways

According to Tom Lee, the recent sell-off in Bitcoin was largely driven by market makers and significant investors reacting to the flash crash on October 10.
On-chain data indicates a possible rebound, but the key recovery trigger, a rate cut from the Fed, is still uncertain as of now.
Bitcoin's [BTC] price has corrected this week to $95K, breaking a crucial support level based on the 365-day moving average (DMA), shifting its long-term momentum to a bearish trend.
If Bitcoin continues to weaken, it may either consolidate below the 365DMA or potentially drop to the next support level around $55K (200-week moving average).

Crypto market Bitcoin Source: Glassnode

Crypto market Bitcoin

Evaluating Recovery Possibilities

Tom Lee, the Chief Investment Officer at Fundstrat and Chair of Bitmine Immersion, anticipates that the current weakness in the cryptocurrency market is temporary and could soon reverse. He attributes the recent downturn to “sharks” and market makers selling off their holdings to cover losses from the recent flash crash in October.

Lee projects that the market might stabilize around 6 to 8 weeks after the deleveraging event on October 10, suggesting a potential recovery by late November or early December.

Crypto market Bitcoin Source: X

In his words, “Is this pain short-term? Yes. Does this change the $ETH supercycle of Wall Street building on blockchain? No.”

Sentiment Shifts and Fed Uncertainty

Currently, monthly outflows from Spot BTC ETFs have reached $2.3 billion, marking the second-highest outflow since their inception. This trend reflects a heightened sense of distress and risk aversion among institutional investors, erasing gains made since the start of the year.

Jim Bianco, an analyst, highlighted that the cost basis for Bitcoin ETFs hovers around $90K, a crucial threshold that, if breached, could lead to further outflows.

Bitcoin crypto market Source: Bianco Research

Despite these challenges, analysts from Santiment and Coinbase share Lee's optimism about a potential recovery. According to Santiment, Bitcoin's social dominance has reached a four-month high amidst fear, which has historically indicated a possible market bottom.

Bitcoin crypto market Source: Santiment

Coinbase analysts believe that short-term relief could occur if the Fed implements another interest rate cut. However, as of this writing, the market seemed to be anticipating a rate pause (55% likelihood) instead of a cut (44% chance for a 25 basis points reduction).

This cautious approach could potentially dampen Coinbase's optimistic forecast. Overall, current market conditions and the existing fear have reached levels that may lead to a reversal. However, the uncertainty surrounding another Fed rate cut in December remains a significant variable. Future economic indicators may provide further clarity.