Tom Lee warns of a significant flaw in market makers' assets and liabilities, with Bitmine countering the trend by increasing ETH holdings by $49 million

November 20, 2025, Fundstrat co-founder and Bitmine Chairman Tom Lee issued an important warning, pointing out that crypto market makers are facing severe balance sheet vulnerabilities due to the October liquidation wave, leading to a continuous decline in market liquidity. On the same day, Bitmine again spent $49 million to acquire 17,242 ETH, bringing its total Ethereum holdings to over 350,000 ETH, worth more than $10 billion, demonstrating institutional long-term confidence amid market turbulence.

The flash crash on October 10 liquidated nearly $20 billion in leveraged positions. To repair their balance sheets, market makers were forced to reduce activity, resulting in wider spreads, shallower market depth, and chain reactions that could take up to eight weeks for the ecosystem to gradually stabilize.

Tom Lee’s Liquidity Warning: The Deep Impact of Balance Sheet Vulnerabilities in Market Makers

In an interview with CNBC on November 20, Lee revealed structural risks behind current crypto market volatility. As Chairman of Bitmine and co-founder of Fundstrat, Lee pointed out that market makers are dealing with balance sheet gaps caused by the October 10 flash crash. The market shock, which liquidated nearly $20 billion in leverage, forced many key market makers to rapidly de-risk to protect capital, significantly reducing their quoting and trading absorption capacity. Unlike previous cycles, liquidity has not rebounded quickly after this sell-off, indicating the problem extends beyond short-term price swings and challenges the robustness of market infrastructure.

Market makers play a critical role in the crypto ecosystem by continuously providing bid-ask quotes to ensure smooth market functioning, maintaining tight spreads, and facilitating fair price discovery. When these key participants are forced to scale back activity, market efficiency suffers directly, manifesting as wider spreads, thinner order books, and more frequent price spikes. Lee emphasizes that such liquidity pressures often reveal deeper cracks within the market ecosystem, especially when market makers need time to rebuild capital and regain confidence, causing ongoing volatility and stability concerns.

Historically, the current situation bears significant similarity to the events of 2022. Lee recalls that the liquidity crisis then took about eight weeks to fully stabilize. Currently, the market is only in its sixth week since the last adjustment, suggesting that several more weeks of pressure may be needed before conditions improve. This timeframe provides important guidance for traders and investors, setting realistic expectations for market recovery. Notably, Bitcoin and Ethereum have emerged as early indicators of liquidity tightening, with their price behaviors offering indirect signals of market maker activity levels.

Key Timeline of the Market Maker Liquidity Crisis

Event Start: October 10, 2025 flash crash

Liquidation scale: nearly $20 billion in leveraged positions

Current stage: Sixth week of adjustment (as of Nov 20)

Expected stabilization period: approximately eight weeks in total

Comparable historical event: 2022 liquidity crisis (eight-week stabilization)

Bitmine’s response: continuous accumulation of ETH, holding 350,000 ETH

Market participants now face a delicate balance—on one hand, they must cope with trading difficulties caused by short-term liquidity shortages; on the other, they need to assess whether this presents a long-term investment opportunity. Lee’s warning is not a sign of market collapse but a call for caution. He believes that once spreads tighten and risks become manageable, new capital will re-enter, and liquidity will return. During this transition, traders should prepare for unconventional market behaviors, including higher slippage and more sudden price swings.

Chain Reaction of October Liquidation Wave: $20 Billion Evaporates, Creating Market Structure Stress

The October 10 flash crash was more than a sharp price movement; it was a stress test for the entire crypto market structure. Nearly $20 billion of leveraged positions were forcibly liquidated that day, marking one of the largest single-day liquidations in crypto history. Its impact went far beyond the price decline itself, profoundly altering the balance sheet structures and risk appetites of market makers. Unlike typical market corrections, this event impacted futures, perpetual contracts, and spot markets simultaneously, causing cross-market arbitrage strategies to fail and amplifying losses.

Market makers suffered a double blow: their large holdings faced liquidation, consuming trading capital; and the risk exposure accumulated while providing liquidity to clients was forced to be rapidly closed, creating significant gaps in their balance sheets. This combined effect pushed many market makers to adopt defensive postures, sharply reducing their willingness to provide liquidity—especially in volatile trading pairs. The result was a thinning order book, where even small trades could trigger significant price movements, with market depth falling to multi-month lows.

The chain reactions extended across multiple dimensions. Retail traders faced higher slippage, increasing trading costs; institutional investors observed deteriorated price efficiency, creating some arbitrage opportunities but also elevating execution risks; even stablecoins experienced abnormal price swings as algorithms struggled to maintain precise pegs amid limited market maker liquidity. From a market structure perspective, this liquidity degradation also hampered new token listings and trading, with many projects finding it difficult to access initial liquidity, thus delaying ecosystem development.

Opacity of data further worsened these challenges. Unlike traditional stock markets, the asset and risk exposures of crypto market makers are not always visible, making it difficult for market participants to accurately assess actual liquidity conditions. Lee’s warning thus serves as an important signal, alerting markets to these often-invisible indicators. Exchange data confirms that average spreads on major trading pairs have widened two to three times compared to pre-October levels, and order book depth at key levels has dropped by over 40%, with these quantitative metrics directly reflecting reductions in market maker activity.

Current Market Liquidity: Challenges and Opportunities for Traders

The current crypto liquidity landscape is complex, presenting both significant challenges and certain opportunities. From a trading execution perspective, spreads have widened markedly—major assets like Bitcoin and Ethereum’s bid-ask spreads on mainstream exchanges have expanded from 0.01-0.02% in early October to 0.05-0.08%, a 300-400% increase. For large-volume traders, this change is especially pronounced; orders over $1 million now face slippage of 0.1-0.3%, whereas during periods of high liquidity, this figure was typically below 0.05%.

Asymmetries in market depth further complicate execution. Order book analysis shows liquidity is now concentrated very close to current prices, and once prices begin to move, support or resistance levels weaken rapidly. This pattern leads to more frequent “wick” events—sharp spikes followed by quick reversals—making stop-loss orders more easily triggered. Data since November indicates that the frequency of such price spikes in major cryptocurrencies has increased by 150% compared to September, adding to risk management challenges.

Market maker activity modes have also shifted, transitioning from continuous two-way quoting to more passive strategies that intervene mainly when prices deviate significantly. This reduces daily volatility but could increase the risk of extreme moves, as lack of sufficient liquidity buffers hampers absorption of shocks when prices breach key levels. Derivatives markets are particularly affected, with futures premiums fluctuating wildly, indicating rising hedging difficulties for market makers.

Nevertheless, these liquidity challenges also create specific opportunities. The decline in pricing efficiency means fundamental analysis may generate higher returns, as deviations from intrinsic value can persist longer. Arbitrage potential increases in environments with widened spreads, despite higher execution risks. Long-term investors may find discounts created by illiquidity attractive for accumulation, especially those who do not rely on leverage and can tolerate short-term volatility. Bitmine’s ongoing accumulation is a prime example—buying large amounts OTC during market stress to avoid impacting prices.

Bitmine’s Contrarian Positioning: From Mining to Digital Asset Treasury

Bitmine, originally a crypto mining company, is transitioning toward a digital asset treasury model, exemplifying a new institutional participation pattern. On November 21, the firm again acquired 17,242 ETH via OTC, worth about $49 million, increasing its Ethereum holdings to 350,000 ETH, valued at over $10 billion at current prices. This acquisition aligns with Bitmine’s long-term strategy to amass assets equivalent to roughly 5% of Ethereum’s circulating supply, a proportion among the highest held by institutional entities.

Bitmine’s funding approach reflects mature corporate treasury management, combining equity financing, cash reserves, and staking rewards to finance acquisitions. This diversified funding reduces liquidity risk and allows sustained accumulation amid market volatility. Notably, most acquisitions were conducted through OTC platforms like FalconX and BitGo, avoiding market impact from public exchanges and ensuring efficient execution. During ETH’s decline from over $4,000 in early October to below $3,000 in mid-November, Bitmine viewed falling prices as accumulation opportunities rather than risks.

Strategically, Bitmine’s move highlights a deep understanding of crypto’s value proposition. The firm regards Ethereum as foundational infrastructure for DeFi, smart contracts, and tokenization, rather than merely speculative assets. This positioning enables its accumulation strategy to transcend short-term price fluctuations, focusing instead on long-term network value. Currently second only to Strategy in crypto holdings, Bitmine has gained significant influence in the rapidly evolving digital ecosystem.

This behavior contrasts interestingly with Lee’s warning. While Lee, as Chairman of Bitmine, has issued alerts about liquidity issues, the same company continues to invest heavily—an apparent contradiction that actually reflects complex institutional decision-making. On one hand, they acknowledge short-term structural problems; on the other, they maintain confidence in Ethereum’s long-term fundamentals. Such divergence is common in traditional finance—professional investors distinguish tactical concerns from strategic convictions. In this case, liquidity issues are tactical, while Ethereum’s long-term value proposition is strategic.

Evolution of the Market Maker Ecosystem and Indicators of Market Health

The crypto market maker ecosystem has evolved dramatically, from early non-professional individual participants to a highly specialized, institutional-dominated landscape. While this professionalization has generally improved market efficiency, it also increases systemic vulnerability—when market makers face simultaneous pressures, liquidity can evaporate rapidly. Current conditions reveal this fragility: the October event damaged several major market makers, and entry barriers remain high, requiring substantial capital, technical expertise, and regulatory compliance.

Assessing market health now extends beyond prices and volumes to finer liquidity metrics. Bid-ask spreads, order book depth, price impact costs, and price discovery efficiency all serve as vital signals of operational status. Most of these indicators are under stress: spreads are widened, depth is reduced, large trades incur higher impact costs. Nevertheless, these metrics can also serve as early signs of recovery—once market makers begin rebuilding balance sheets and resuming normal activity, these indicators should improve first.

The process of balance sheet repair follows a predictable yet variable path. First, risk reduction and deleveraging often lead to further liquidity deterioration; second, capital restructuring involves seeking new funds or reallocating existing resources; third, gradual reinstatement of activity typically starts with the most liquid assets and expands outward. Lee estimates that the current market is transitioning from phase one to phase two, suggesting the worst liquidity pressures may have passed, but full recovery still requires time.

From a regulatory perspective, liquidity issues among market makers have gained attention. As crypto markets deepen ties with traditional finance, regulators are increasingly concerned about the robustness of market infrastructure, especially systemic risk-prone elements. The health of market makers, as core participants, may influence broader financial stability. This may lead to new reporting requirements or capital standards that further shape the evolution of the ecosystem.

Cyclical Comparison and Future Market Outlook

Placing current conditions in a historical context offers valuable insights. Lee’s reference to the 2022 similar event highlights shared features—liquidity crises triggered by leverage liquidations, damage to market maker balance sheets, and multi-week recovery periods. Yet, differences are also notable: today’s markets are larger, with higher institutional participation and closer ties to traditional finance, which could accelerate or delay recovery depending on the interplay of capital availability and complexity.

In terms of cycle positioning, the current correction occurs amid a continued upward trend in crypto adoption. On-chain metrics show long-term holders increasing, network activity remaining healthy, and institutional adoption expanding. These fundamentals contrast with short-term liquidity problems and support the view that this is a mid-cycle correction rather than a trend reversal. Historically, 20-30% corrections during bull markets, accompanied by liquidity strains, are common and typically do not derail the long-term upward trajectory.

Looking ahead, the coming weeks may see two main scenarios. In an optimistic case, market makers successfully repair balance sheets, new capital flows in to fill liquidity gaps, spreads tighten, market depth recovers, and price discovery becomes efficient again. This scenario would turn current lows into accumulation opportunities. In a cautious scenario, recovery is slower than expected, or additional shocks occur (e.g., macroeconomic pressures or regulatory developments), prolonging liquidity issues and increasing volatility. In this case, markets may need more time to establish a solid bottom.

Participants should balance short-term caution with long-term optimism. Strategies include adjusting position sizes, using limit orders instead of market orders, focusing on more liquid trading pairs, avoiding trading during low-liquidity periods, and closely monitoring spread and depth indicators as signs of market health. Long-term investors might consider dollar-cost averaging or OTC accumulation to reduce timing risks.

FAQ

What exactly does Tom Lee mean by the market maker balance sheet vulnerability warning?
Tom Lee pointed out that the October 10 liquidation of nearly $200 million led to a gap in market makers’ balance sheets, forcing them to scale back liquidity provision, widening spreads, weakening market depth, and potentially requiring about eight weeks for full recovery. Currently, the market is in its sixth week of adjustment.

How does declining market maker liquidity affect retail traders?
Reduced liquidity causes wider spreads, higher slippage, and increased execution costs, making large orders more difficult to execute without impacting prices. Retail traders face higher transaction costs, more frequent price spikes triggering stop-loss orders, and increased difficulty in managing risk.

Why is Bitmine continuing to buy ETH during market turmoil?
Bitmine, as a transitioning digital asset treasury, takes a long-term accumulation approach, aiming to hold about 5% of Ethereum’s circulating supply. It continues OTC purchases during declines, funded by equity raises, cash reserves, and staking rewards, reflecting confidence in Ethereum’s long-term value.

When is liquidity expected to recover?
Based on 2022’s similar events, Lee estimates the entire process takes about eight weeks. We are currently in week six, and several more weeks of pressure may be needed before conditions improve. Key indicators include spread narrowing, order book depth improving, and market maker activity resuming normal levels.

How should traders adapt to the current liquidity environment?
Traders should adjust strategies—use limit orders instead of market orders, reduce position sizes, focus on high-liquidity pairs, avoid trading during low-liquidity periods, and monitor spread and depth closely. Long-term investors might consider dollar-cost averaging or OTC accumulation to mitigate timing risks.