Tom Lee revealed: The plunge is due to the liquidity exhaustion on 1011, and market makers are selling off to fill the "financial black hole."

Original Title: "Tom Lee Reveals: Recent Plunge is Due to Liquidity Drain Left by October 11, Market Makers' Massive Sell-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 real driving force behind 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, even the lubricant that should stabilize the market was hurt, triggering a series of mechanical sell-offs.

Market Makers' Wounds: Balance Sheet Explodes a 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. These institutions usually earn spreads through high-frequency trading, similar to "invisible central banks." However, the extreme volatility caused their hedging models to fail, resulting in holes in their balance sheets. To stem the bleeding, market makers had no choice but to urgently recover funds, equivalent to dismantling the last layer of safety net in the market.

Order Book Dried Up: Crypto Version of Quantitative Tightening

After the capital withdrawal, the depth of the order book shrank sharply, with liquidity evaporating by as much as 98% at its worst. This "crypto version of quantitative tightening" is not a central bank decision, but rather a survival instinct. When the order book is 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 bank. When their balance sheets are damaged, liquidity tightens, and the market becomes fragile."

Without a real central bank backstop and lacking an automatic deleveraging mechanism, a 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 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 already positioned themselves in advance. BitMine Immersion Technologies purchased an average of 54,000 ETH during the plunge, amounting to about $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 stronger "revenge rebound." At this stage, what tests 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 liquidity withdrawal forced by market makers has distorted prices. If historical patterns repeat, as the order book refills after Thanksgiving, investors may witness another wave of momentum returning. Given the still weak market walls, cautious allocation and risk control remain key for the next steps.