Tom Lee warns of a major crypto market maker balance sheet hole

A sharp shift is unfolding across the crypto market after October’s massive shakeout. Tom Lee believes the industry is not dealing with a small setback but a deeper structural issue. He points to a possible balance sheet gap that formed after nearly $20 billion vanished during October’s liquidation wave. His view signals concerns that stretch beyond short-term price swings.

The warning lands during a period of fast movements, thin books, and sudden wicks that shake traders almost daily. Lee argues that market maker liquidity did not bounce back after the selloff, unlike previous cycles. This drop creates uncertainty for traders who depend on tight spreads and smooth order execution. Such liquidity stress often reveals deeper fractures within the market ecosystem.

Investors now want clarity because the selloff shocked many participants who expected a calmer final quarter. They also want to know if a crypto liquidity crunch will extend into the next months. Lee believes the market must track this issue closely because it shapes volatility, stability, and fair price discovery.

⚡️ TOM LEE: Market makers may be facing a “balance sheet hole” after October’s $20B liquidation, reducing liquidity across crypto. pic.twitter.com/l8q1Hpi5TW

— Cointelegraph (@Cointelegraph) November 21, 2025

Market makers struggled after October’s massive liquidation wave

October’s $20B liquidation created more than a painful price drop. It drained balance sheets and forced major market makers to unwind positions. Many firms cut risk quickly to protect capital. This left fewer players ready to provide quotes or absorb trades.

The result created a balance sheet gap that still affects order books. Traders noticed wider spreads, weaker depth, and more sudden spikes during regular trading. These signs show that market maker liquidity has not recovered.

When liquidity falls, every move hits harder. Retail traders deal with more slippage. Institutions find mispriced entries. Even stable tokens see strange ticks as algorithms struggle with limited books. October’s wipeout therefore created a chain effect that still shapes the market today.

A weaker market maker base impacts the entire ecosystem

Market makers anchor the crypto ecosystem. They ensure smooth execution, tight spreads, and fair pricing. When they step back, inefficiencies rise. Traders suffer wider entries. Exchanges handle more price gaps. New tokens struggle to gain momentum.

This is why the recent drop in market maker liquidity deserves close attention. Lee believes the recovery may take time because firms need to rebuild capital. They also need confidence that future liquidations will not wipe out gains instantly. Until then, market depth remains uneven.

Market outlook remains uncertain but not hopeless

Lee’s warning does not mean the market collapses. It suggests caution. The crypto market often rebounds after stress cycles. New capital enters once conditions normalize. Liquidity flies back when spreads tighten and risk feels manageable.

A healthier market needs more stable books, tighter spreads, and stronger support from major firms. Once the crypto liquidity crunch eases and the balance sheet gap closes, confidence will rise again.