There’s no reason to rush into tech stocks or even the market before capitulation is likely to occur between now and January.  Equities have had a great run in 2026, and substantial gains in stocks are likely to face further pressure as investors reduce risk in a declining market with increased volatility.  We are watching for more negative news in cryptocurrencies and a bottoming, including some stabilization on a multi-week basis, before re-entering stocks.

Crypto’s Liquidity Crunch: Tom Lee Explains the “Code Bug” Behind Bitcoin’s Slump

In a recent interview, Fundstrat’s Tom Lee shed light on the mysterious forces driving recent volatility in crypto and equity markets — and his insights reveal that the current downturn might not be driven by investor sentiment alone, but by a deeper structural failure in the crypto market’s plumbing.

A Familiar Pattern of Volatility

Nvidia’s dramatic post-earnings swings might have been the headline, but the real story, according to Lee, lies in crypto’s parallel turbulence. Since October 10th, the cryptocurrency market has been “limping along,” in his words, following a sudden and severe liquidation event that crippled market makers — the essential liquidity providers that act as crypto’s version of a central bank.

Lee drew parallels to 2022, when a similar liquidity shock took eight weeks to fully unwind. As of late November, the market is six weeks into this latest contraction, suggesting that a bottom may be approaching.

The October 10th “Bug” That Broke the Market

At the heart of the crisis, Lee explained, was a technical flaw — a “code error,” not a mere “glitch” — that triggered a chain reaction of automatic liquidations (known as ADL, or Auto-Deleveraging). On one crypto exchange, a stablecoin briefly fell to 65 cents instead of its intended $1 peg, due to faulty internal pricing rather than cross-exchange price averaging.

That tiny code oversight caused a massive cascade: as the system detected the stablecoin’s price drop, millions of accounts were automatically liquidated across exchanges, wiping out profitable positions and forcing market makers to raise capital and shrink their trading activity.

Reflexive Selling and the Liquidity Spiral

As Lee described it, the fallout created a reflexive cycle: market makers with damaged balance sheets pulled back on activity, reducing liquidity and further pressuring prices. Lower prices, in turn, forced more liquidations. This “reflexive weakening,” as Lee called it, explains the slow, grinding decline in Bitcoin and Ethereum prices in recent weeks.

The situation mirrors historical financial crises triggered by structural failures — from 1987’s portfolio insurance meltdown to the 2008 mortgage collateral breakdown. In each case, automation and leverage amplified what began as a technical or design flaw.

Watching the Crypto “Proxy”: MicroStrategy

One of Lee’s most striking points was about MicroStrategy (MSTR), the business intelligence company turned Bitcoin proxy. Down roughly 65% from its summer highs, the stock has become the market’s de facto tool for hedging crypto exposure.

Large institutional holders of Bitcoin, Lee noted, often can’t efficiently hedge billions in crypto positions using derivatives or futures. Instead, they short or buy puts on MicroStrategy — whose liquid options market absorbs that hedging pressure. This makes MSTR both a victim and a leading indicator of crypto sentiment.

Is the Bottom Near?

Despite the turmoil, Lee remains cautiously optimistic. Historically, Bitcoin’s recoveries from similar sell-offs have been faster than the declines, as panic sellers exit and sidelined buyers reenter with conviction. He suggested that Bitcoin could bottom near $77,000 (down from $125,000 highs), with Ethereum finding support around $2,500 — levels that might mark the next washout phase before a renewed rally.

“People are sitting on their hands,” Lee said. “But once this flush is complete, the recovery will likely be swift.”

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