Short squeeze: when short sellers start to panic

A short squeeze is a financial trap that traders betting on a dip often fall into. The essence is simple: when the price rises, those who opened a short ( sold in anticipation of a dip) are forced to urgently bail-out the asset back. This creates strong demand and spins the price like a top.

How does this happen in practice?

Scenario of the squeeze development:

1. Traders are confident that the price will dip and take the asset from the broker by selling it.
2. Suddenly, good news or a large purchase appears — the price starts to rise.
3. The losses of the short seller are rising, the broker demands to close the position.
4. Forced closing of shorts creates additional demand
5. The price is soaring even higher — snowball effect

Historical examples that changed the market

GameStop (GME) in 2021 remains a legend of short squeezes. Retail traders from Reddit bought up shares, and the price soared from $20 to $483 in just a few days. Hedge funds that held huge shorts suffered billion-dollar losses.

In the cryptocurrency world, such events happen regularly. Bitcoin and altcoins create powerful squeezes during sharp upward movements, especially when there are many liquidations accumulating in the futures market.

How not to become a victim? Practical advice

Monitor metrics:

• The percentage of open Shorts - high levels signal danger
• Liquidation volumes in derivatives - sharp spikes often trigger chain reactions.
• Rising volumes during an upward movement are a classic sign of the beginning of a squeeze.

What to watch in the terminal:

• Funding rate on futures ( is rising before the squeeze )
• The total of open shorts in dollars
• The ratio of shorts to longs

Current levels: BTC $91,537 (+0.06%), ETH $3,051 (+0.74%), BNB $895.87 (+0.33%).

⚠️ This is analysis, not financial advice. Risk is your responsibility.