Evaluate the following from 'emacs -Q':

    (setq-local foo 1)

    ;; Simulate (debug-watch 'foo) + continue from *Backtrace*
    (add-variable-watcher 'foo (lambda (symbol newval operation where)
                                 (with-temp-buffer
                                   (kill-all-local-variables))))
    (fundamental-mode)

This results in

../../src/data.c:98: Emacs fatal error: assertion failed: found == !EQ (blv->defcell, blv->valcell)

Backtrace attached.  I guess it has something to do with the recursive
`kill-all-local-variables' call, although I'm not familiar enough with
the local variable machinery to say more about it.