Looks like a rust bubble popped off the paint. Suspect that a significant thickness of what was steel is now rust in a 10-12mm diameter area.
I would suggest at least pulling the BB and seat post and eyeballing the insides of the tubing so see what else might be going on. Frame is
safe to ride but its value just dropped a lot. 853 tubing was probably butted, so this will be a thicker part but one reason for 853 was
strength and hence thinness, so you might be dealing with an area where the tubing thickness was under 0.06" to start with.

A google on 853 Reynolds tubing pops up a wiki article, pretty impressive stuff. From the pix, your frame was butt welded, don't see
any evidence of lugs.