What Is a “Short Squeeze” and How Does It Happen in Crypto Markets?

A short squeeze occurs when the price of an asset rapidly increases, forcing short sellers to buy back their positions to cut their losses. In crypto markets, this is often triggered by a sudden surge of positive news, a large buy order, or market manipulation.

As short sellers rush to buy, their buy orders add more fuel to the price rally, creating a feedback loop. This forces the price up even further and faster, liquidating other short positions along the way.

The high leverage and volatility in crypto can make these squeezes extremely violent and rapid.