I've noticed that lately there are many questions about short squeezes. Let's figure out what it actually is and why you should pay attention to it.

A short squeeze is essentially when the price of an asset suddenly skyrockets because traders who held short positions are forced to close them quickly. It creates an avalanche effect — the more shorts are closed, the higher the price jumps, which causes even more people to exit their positions. This is a chain reaction.

How does it happen? First, traders confident in a decline open shorts. They borrow the asset from a broker and sell it, expecting to buy it back cheaper later. But then something changes — news arrives, large buyers enter the position, or manipulation simply begins. The price starts to rise, and those in shorts see their positions go into the negative.

Then it gets more interesting. Brokers begin forcibly closing short positions to protect themselves from losses. People are forced to buy back the asset, but at much higher prices. This creates additional demand, the price accelerates even more, and the next wave of liquidations is triggered. Parabolic growth can be explosive.

The most famous example is, of course, GameStop in 2021. Remember how retail investors bought up shares, and the price soared from $20 to $483? That was a classic short squeeze. On the crypto market, this happens constantly, especially when volatility is sky-high and there are many open short positions on futures.

If you want to not miss such a moment, pay attention to a few things. First, monitor the percentage of open short positions — if it’s high, that could be a signal. Second, watch for liquidations on the futures market, especially if they start to increase. Third, pay attention to trading volumes — a sharp spike in volumes during an upward trend often indicates a short squeeze is beginning.

According to current data, Bitcoin is trading around $81.21K with a 0.28% increase over the day, Ethereum holds at $2.30K with a decrease of 0.19%, and BNB shows a growth of 3.08% to $679.70. The crypto market remains volatile, so short squeezes are a frequent phenomenon here.

A short squeeze is not just a theory; it’s a real market event that can cause huge price movements. The main thing is not to panic and to remember the risks. This is informational, not financial advice.