Tom Lee points directly to the culprit behind the plunge: market makers' "crazy selling" to fill the 10/11 gap, with the correction nearly over.

Original Title: "Tom Lee Reveals: Recent Crash Caused by Liquidity Drain Left by 1011, Market Makers Dumping Assets to Fill 'Financial Black Hole'"

Original Source: BlockTempo

Bitcoin (BTC) price is hovering around $86,000, seemingly indifferent to the "Trump rally," but the real driver of the trend is not policy expectations, but rather the liquidity black hole left by the liquidation storm on October 11. Fundstrat co-founder and BitMine chairman Tom Lee pointed out on CNBC that major market makers lost as much as $19 to $20 billions that day, even the lubricants that should stabilize the market were hurt, triggering a series of mechanical sell-offs since then.

The Wounds of Market Makers: Balance Sheets Blown Open

According to Tom Lee's analysis, the one-sided market on October 11 not only wiped out excessive leverage but also dragged market makers down. These institutions usually earn spreads through high-frequency matching, acting like "invisible central banks." However, the violent volatility caused their hedging models to fail, creating holes in their balance sheets. To stop the bleeding, market makers had to urgently recall funds, which was equivalent to removing the last safety net from the market.

Order Book Dries Up: Crypto Version of Quantitative Tightening

After the capital withdrawal, order book depth shrank rapidly, 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 small sell-offs can break through price levels and trigger more forced liquidations. Predatory traders take the opportunity to push prices down, creating a vicious cycle where prices no longer reflect asset value, but only the failure of market mechanisms.

Lee bluntly stated:

"Market makers are actually like the central banks of (crypto). When their balance sheets are damaged, liquidity tightens and the market becomes fragile."

Without a real central bank backstop or an automatic deleveraging mechanism, a crash affects the entire trading infrastructure, not just a single asset.

Repair Progress: The 6th Week of the Ecosystem Pool

Historical experience shows that a pure liquidity crisis usually eases in about eight weeks. Currently, we are in the 6th week, and market makers are rebuilding firewalls through position reduction, capital injection, and hedging. The market's "ecosystem pool" is still murky, but the most intense bleeding phase seems to be over.

Some institutions have already taken early positions. BitMine Immersion Technologies bought 54,000 ETH at an average price during the crash, totaling about $173 millions, indicating that smart money sees this event as a liquidity shortage rather than a cycle reversal.

Investors' Current Position

Liquidity is like the oxygen of the market; once it returns, prices often rebound even faster. As market makers' balance sheets gradually heal, and with the possibility of new policy expectations from a Trump administration, bitcoin and broader crypto assets may see a strong "revenge rally." At this stage, what tests investors is the patience to distinguish signals from noise: don't mistake mechanical failures for fundamental deterioration, and don't abandon positions at the darkest moment.

In summary, the flash crash on October 11 was a structural short circuit that severely wounded the market's invisible central banks. The market makers' period of stopping the bleeding forced liquidity to recede, causing price distortion. If history repeats itself, as order books refill after Thanksgiving, investors may see another wave of momentum return. Facing still fragile market walls, prudent allocation and risk control remain key for the next step.