Dr. B. Lyons: "The reddish deposit flowing out of Blood Falls is probably the last remnant of an ancient salt-water lake. The lake probably formed as much as 5 million years ago when the sea levels were higher and the ocean reached far inland. Analysis suggests deposits formed at the site of an ancient lakebed when the ocean receded from the valley. Perhaps at a time when this valley resembled more a Scandanavian fjord, some sea water was trapped in the lower portion of the valley. When the Taylor Glacier eventually advanced over the top, the seawater was essentially freeze-dried and trapped during the Miocene period."
Researchers believe that "as the glacier moved forward down through the valley, it captured some of the deposit and forced it up into the body of ice. Eventually, the deposit reached the margin, or edge, of the glacier and is being slowly pushed out or the ice.
As the reddish, icy sludge melts at the margin of the glacier, it runs off into Lake Bonney, one of only four ice-covered lakes in the Dry Valleys." See http://researchnews.osu.edu/archive/bloodfalls.htm