It's just described having gripping fingers at the ends of the tentacles, and this is my interpretation of that. Actual hands might well be an overinterpretation, but that's the way I imagined it when reading it and it was a creepy-fun thing to draw, anyway. (:
I like the fact that you drew the thing with hands. It kind of gives off a feel that this thing, whatever it is, is more than just a foul octopus, that there's probably something really big, really nasty, and quite monstrous lurking in the fetid dark waters outside of Moria.
More than any other, you've done a good job of capturing Tolken's idea of something being really quite unwholesome in those waters.