When **short liquidation (short squeeze)** occurs, it usually triggers a series of chain reactions, analyzed from the perspectives of physical and financial mechanics as follows:



1. The essence of short liquidation



  • Short sellers borrow assets (such as Bitcoin) to sell, expecting to buy back after the price drops, thereby profiting from the difference.


  • When prices rise instead of falling, short sellers face increasing losses, and once the margin is insufficient, they will be forcibly liquidated by the exchange (margin call).



2. The 'positive feedback mechanism' of accelerating price increases


This is a nonlinear dynamic system, forming a process similar to 'compressed spring release':



  • Liquidation position => Forced buying => Increased buying => Price increase => More shorts approaching liquidation point


  • A system change similar to a phase transition critical point, once the critical point is triggered, prices shift rapidly.



3. Trading depth exhausted, slippage increased dramatically



  • Forced liquidation orders are triggered in a very short time, and the matching engine will prioritize eating through the pending orders at market price.


  • If the market depth is insufficient, prices will jump sharply, forming a huge 'slippage staircase'.



4. High-frequency quantitative and follow-on funds accelerate the rise



  • High-frequency market-making strategies (such as TWA, Sniper) will detect increased buying pressure and forced short liquidations.


  • Once the short squeeze mode is confirmed, high-frequency strategies will reverse to go long, leading to a resonance phenomenon.


  • Retail funds and the FOMO effect will subsequently follow, becoming the second wave of resonance sources.



5. Derivatives markets feedback to spot prices (reflexivity)



  • When the liquidation point is concentrated around $100,000, a large number of futures short liquidations will translate into actual buying pressure.


  • Futures prices and spot prices transmit through arbitrage mechanisms, forming a positive feedback closed loop.



6. System pressure and delay risks for the exchange



  • Large-scale liquidations will bring matching pressure, WebSocket push delays, and order queue lags.


  • Some exchanges will enable 'protection mechanisms', such as temporarily banning short positions, limiting leverage, etc.



7. Looking at this behavior from the perspective of entropy increase and dissipative structures



  • The market transitions from a brief orderly state (heavy short pressure) into a chaotic state (liquidation releasing energy);


  • Belongs to the sudden change of dissipative structure systems, energy release (buy orders) comes from the collapse of the original structure (short liquidation).



Summary:


Short liquidations can trigger a rapid price surge, resulting in increased trading slippage, with follow-on funds rushing in, forming positive feedback between futures and spot markets, and the entire market presenting a positive feedback loop of entropy increase mutations.



Question Guidance:
Would you like me to simulate a market model of 'short liquidation leading to a significant short-term price increase' (can be constructed using Markov chains + nonlinear reaction systems)? Or do you want to use actual transaction data to deduce whether we are close to the liquidation point?