Tom Lee Reveals: Market Crash Stemmed from 10/11 Liquidity Drought, Market Makers Selling Off to Fill "Financial Black Hole"

Original Title: "Tom Lee Reveals: Recent Plunge Due to Liquidity Exhaustion from 1011, Market Makers Selling Off in Bulk to Fill 'Financial Black Hole'"

Original Source: BlockTempo by BlockTempo

Bitcoin (BTC) price hovering around $86,000 seems indifferent to the "Trump Rally," but the actual driving force behind the trend is not policy expectations, but rather the liquidity black hole left by the October 11 clearing storm. Tom Lee, co-founder of Fundstrat and chairman of BitMine, pointed out on CNBC that large market makers lost as much as $19-20 billion on that day, with even the lubricant intended to stabilize the market being hurt, thus triggering a series of mechanical sell-offs.

Market Maker Wound: Balance Sheet Explodes with Black Hole

According to Tom Lee's analysis, the one-sided trend on October 11 not only swept away excessive leverage but also dragged market makers down. These institutions typically profit from high-frequency trading spreads, acting as a sort of "invisible central bank." However, the violent fluctuations caused risk models to malfunction, leading to holes in the balance sheet. To stop the bleeding, market makers had to urgently recoup funds, equivalent to removing the market's last safety net.

Dry Order Book: Crypto Quantitative Tightening

After the fund outflows, the order book depth shrank rapidly, with liquidity evaporating by 98% at its worst. This "crypto version of quantitative tightening" is not a central bank decision but a survival instinct. When order books are thin, a small amount of selling is enough to break through price levels, triggering more forced liquidations. Opportunistic traders pushed prices down, creating a vicious cycle where prices no longer reflect asset values, only the failure of market mechanisms.

Lee stated:

"Market makers are actually 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 backstop and a lack of automatic deleveraging mechanisms, the collapse affects the entire trading infrastructure, not just a single asset.

Recovery Progress: Week 6 of the Ecosystem

Historical experience shows that pure liquidity crises usually take about eight weeks to ease. We are currently in the sixth week, with market makers rebuilding firewalls through deleveraging, recapitalization, and hedging. While the market's "ecosystem" is still murky, the most intense period of bleeding seems to have passed.

Some institutions have positioned themselves early. BitMine Immersion Technologies bought an average of 54,000 ETH during the plunge period for approximately $173 million, showing that smart money sees this event as a liquidity shortage rather than a cycle reversal.

Investor's Current Position

Liquidity is like the oxygen of the market. Once it flows back, prices tend to bounce back faster. With market makers' balance sheets gradually healing and the possibility of the new Trump administration bringing in policy innovation, Bitcoin and general cryptocurrency assets may experience a strong "recovery rebound." The current challenge for investors is to have the patience to distinguish signals from 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. Market maker's bloodletting period forced liquidity to dry up, causing price distortion. If history repeats itself, as the order book fills up again after Thanksgiving, investors may witness another wave of kinetic energy flow back. Faced with still fragile market walls, prudent allocation and risk control remain key steps.