Short squeeze

Traders who sell short profit if a price falls and lose if it rises. When the price climbs instead, they eventually have to buy the asset back to close their positions, either by choice or because the exchange liquidates them. That wave of forced buying adds demand on top of the original move and can lift the price far and fast.

In crypto, squeezes mostly play out in perpetual futures. Signs that one may be building include high open interest, deeply negative funding rates, which show that short positions are crowded, and large clusters of liquidation levels just above the current price. A single large buy order can trigger the first liquidations and set off a chain reaction lasting minutes.

Short squeezes are usually brief, and prices often retrace once the forced buying ends. For short sellers, the main protections are modest leverage and stop-loss orders; for buyers, chasing a squeeze late means entering at inflated prices just as the fuel runs out.