Tom Lee revealed: The big dump was due to liquidity exhaustion on 1011, and market makers sold to fill the "financial black hole".

Original title: “Tom Lee Reveals: Recent big dump is due to the liquidity exhaustion left by 1011, with market makers selling off in large quantities to fill the 'financial black hole'”

Original author: BlockTempo

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Reprint: Mars Finance

Bitcoin (BTC) is hovering around $86,000, seemingly indifferent to the “Trump effect.” However, what truly drives 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 suffered losses of up to $19 billion to $20 billion that day, with even the lubricants that should stabilize the market being affected, triggering a series of mechanical dumpings.

The Wound of Market Makers: Balance Sheet Blows Out Black Hole

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 matching, similar to “invisible central banks.” However, the extreme volatility caused risk-averse models to fail, resulting in holes in their balance sheets. To stem the losses, market makers had no choice but to urgently reclaim funds, equivalent to dismantling the last layer of safety net in the market.

Order book dries up: Crypto version of quantitative tightening

After the capital withdrawal, the order book depth shrank sharply, with liquidity evaporating by 98% at the worst point. This “crypto version of quantitative tightening” is not a central bank decision, but a survival instinct. When the orders are thin, a small amount of selling is enough to break through price levels, triggering more forced liquidations. Predatory traders take the opportunity to push down prices, creating a vicious cycle where prices no longer reflect asset value but only the failure of market mechanisms.

Lee bluntly said:

“Market makers are essentially like the central banks of cryptocurrencies. When their balance sheets are damaged, liquidity tightens, and the market becomes fragile.”

In the absence of a true central bank backstop and lacking an automatic deleveraging mechanism, a collapse affects the entire trading infrastructure rather than a single asset.

Repair progress: Ecological pool of week 6

Historical experience shows that pure liquidity crises typically take about eight weeks to alleviate. We are currently in the sixth week, and market makers are rebuilding their firewall 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 positioned themselves in advance. BitMine Immersion Technologies bought 54,000 ETH at an average price during the big dump, amounting to approximately 173 million USD, indicating that smart money views this event as a liquidity shortage rather than a cycle reversal.

Current coordinates of investors

Liquidity is like the oxygen of the market; once it flows back, prices often bounce back faster. As market makers' balance sheets gradually heal, coupled with the possibility that Trump's new government may bring policy imagination, Bitcoin and broader crypto assets might welcome a stronger “revenge rebound.” At this stage, what tests investors is the patience to distinguish between signals and noise: don't mistake mechanical failures for fundamental deterioration, and don't give up your position in the darkest moments.

In summary, the flash crash on October 11 was a structural short circuit that severely wounded the invisible central bank of the market. Market makers' bloodletting period forced liquidity to recede, resulting in distorted prices. If historical patterns repeat, investors may see another wave of momentum return as the order book fills up again after Thanksgiving. In the face of still weak market walls, cautious allocation and risk control remain key for the next steps.