Original Title: "Tom Lee Reveals: Recent Plunge is Due to the Liquidity Drain Left by October 11, Market Makers Selling Off to Fill the 'Financial Black Hole'"
Original Source: BlockTempo
Bitcoin (BTC) price hovers around $86,000, seemingly indifferent to the "Trump Rally," but the true driver of the trend is not policy expectations, but rather the liquidity black hole left by the liquidation storm on October 11. Tom Lee, co-founder of Fundstrat and chairman of BitMine, pointed out on CNBC that large market makers lost as much as $19 billion to $20 billion that day, and even the lubricants that should stabilize the market were hurt, triggering a series of mechanical sell-offs.
The Wounds of Market Makers: Balance Sheets Explode into Black Holes
According to Tom Lee's analysis, the one-sided market on October 11 not only swept away excessive leverage but also dragged market makers down with it. These institutions typically earn spreads through high-frequency trading, acting like "invisible central banks." However, the extreme volatility caused their risk management models to fail, resulting in holes in their balance sheets. To stem the bleeding, market makers had no choice but to urgently recover funds, effectively dismantling the last layer of safety net in the market.
Order Book Dries Up: Crypto Version of Quantitative Tightening
After the capital withdrawal, the depth of the order book shrank dramatically, with liquidity evaporating by as much as 98% at its worst. This "crypto version of quantitative tightening" is not a central bank decision but a survival instinct. When orders are thin, even a small amount of selling can breach price levels, triggering more forced liquidations. Predatory traders take the opportunity to push prices down, creating a vicious cycle where prices no longer reflect asset values but rather the failure of market mechanisms.
Lee stated:
"Market makers are essentially like the (cryptocurrency) central banks. When their balance sheets are damaged, liquidity tightens, and the market becomes fragile."
In the absence of a true central bank safety net and lacking an automatic deleveraging mechanism, the collapse affects the entire trading infrastructure, not just a single asset.
Repair Progress: The 6th Week of the Ecological Pool
Historical experience shows that pure liquidity crises typically take about eight weeks to alleviate. We are currently in the 6th week, and market makers are rebuilding their firewalls through reducing positions, increasing capital, and hedging. Although the market's "ecological pool" remains murky, the most intense bleeding period seems to have passed.
Some institutions have already positioned themselves early. BitMine Immersion Technologies purchased an average of 54,000 ETH during the plunge, amounting to approximately $173 million, indicating that smart money views this event as a liquidity shortage rather than a cyclical reversal.
Current Coordinates for Investors
Liquidity is like oxygen for the market; once it flows back, prices often rebound more quickly. As market makers' balance sheets gradually heal, coupled with the possibility that the new Trump administration may bring policy imagination, Bitcoin and broader crypto assets may experience a strong "revenge rebound." The current test for investors is the patience to distinguish between signals and noise: do not mistake mechanical failures for fundamental deterioration, and do not abandon positions in the darkest moments.
In summary, the flash crash on October 11 was a structural short circuit that severely injured the market's invisible central bank. The bleeding period for market makers forced liquidity to recede, distorting prices. If historical patterns repeat, as the order book refills after Thanksgiving, investors may witness another wave of momentum returning. In the face of still weak market walls, cautious allocation and risk control remain key for the next steps.
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