Short Squeeze of 294.7 Million: How Perpetual Crypto Liquidations Surprised the Market on March 21, 2025

The crypto derivatives market experienced a significant event on March 21, 2025: liquidations totaling $294.7 million in just 24 hours exposed how quickly sentiment can reverse in leveraged trading. But what does this really mean for those operating daily in these markets?

From Zero to Crash: The Sequence of Liquidations

As Bitcoin and Ethereum prices started rising during this period, the numbers began speaking for themselves. It wasn’t an event focused on a single asset but a systemic phenomenon affecting the main cryptocurrencies simultaneously.

Bitcoin bore the brunt: $186 million in perpetual liquidations, with a disturbing detail emerging from the numbers—the 91.26% of this volume (169.7 million dollars) came from short positions. The cascading BTC price chart caught short sellers completely unprepared.

Ethereum was not spared: $78.27 million in forced closures, with short positions accounting for 74.91% (58.6 million dollars). A setup similar to BTC, suggesting it was not coincidence but market logic.

XRP completed the picture: $30.44 million in liquidations, with shorts constituting 82.02% of the total (24.97 million dollars).

These numbers reveal a crucial aspect: the market was overloaded with bearish bets before the bullish move.

The Mechanics of a Short Squeeze Explained from Zero

A short squeeze occurs when the price rises and short sellers start losing money. But the process is more complex than it seems.

Here’s what happens step by step:

When you open a short position with leverage, you borrow the asset and sell it immediately. If the price drops, you realize a profit. If it rises, you start losing. With each percentage point increase, your collateral (the guarantee you deposited) decreases in relative value.

At a certain critical threshold—determined by the platform’s margin ratio—the exchange doesn’t wait for the trader to decide to exit. It automatically executes a margin call: add more collateral, or the position is forcibly closed at a loss.

This is where the cascade begins. When thousands of traders are liquidated simultaneously, they must buy the asset to close their losing positions. This wave of forced buying pushes the price higher, triggering even more liquidations. It’s a domino effect driven by mathematics, not human psychology.

Three Factors That Ignited the Fuse

Excessive leverage: Perpetual contracts allow up to 100x leverage or more on some platforms. With 50x leverage, a 2% move against your position wipes out 100% of your collateral. Many traders use 10x-25x leverage thinking they manage risk, but liquidation data shows this is insufficient in fast markets.

Persistently positive funding rates: In these markets, long traders regularly pay short traders to maintain balance. A high positive funding rate makes holding a short position costly, creating psychological pressure on sellers. When a bullish push occurs, this pressure turns into panic.

Absence of negative macroeconomic catalysts: This event wasn’t triggered by a global economic collapse or disastrous news about a single cryptocurrency. It was purely the result of organic market dynamics: excessive leverage accumulation, concentrated short positions, and then a simple upward price movement that attracted buyers. The cascading chart that resulted wasn’t technically surprising but disastrous for those on the wrong side.

Historical Context: Was It Really Severe?

To put it in perspective: liquidations of nearly $300 million in 24 hours are significant but not historically exceptional.

In May 2022, when Luna/Terra imploded, the market saw daily liquidations exceeding $1 billion. The same happened during the FTX crisis in November 2022. Yet, this event on March 21, 2025, deserves attention for a different reason: it occurred without a macroeconomic disaster background.

There was no exchange failure, no related collapse of traditional assets, no major geopolitical event. Just the crypto market doing what it does best: moving quickly and liquidating the unprepared.

This suggests that the market infrastructure has matured. The liquidation engines of exchanges processed nearly $300 million without reported failures, platform freezes, or losses reported by innocent users. It was a necessary purge of leverage, not a systemic explosion.

What Happens Next: The Effect on Traders and Exchanges

For traders: If you were in one of these short positions, the outcome depended on how much collateral you had deposited. Those maintaining a 20% margin ratio were fully liquidated. Those with a 50% margin might have endured significant losses before being liquidated or voluntarily exiting. Who used stop-losses at -5% on the price? They probably avoided the worst.

For exchanges: This event was a stress test. Smooth processing of massive liquidations without interruptions is a green signal for the crypto derivatives infrastructure. It means that when volatility spikes, systems remain stable. This boosts institutional investors’ confidence, who demand robust risk systems.

For future sentiment: Events like this change behavior. Traders start asking themselves: “Was I using excessive leverage?” “Where should I have placed my stop-loss?” “Why wasn’t I diversified?” Risk management practices receive renewed attention. Stop-loss orders become less rare. Average leverage will likely decrease in the following days.

Concrete Lessons to Avoid the Next Short Squeeze

1. Calculate your safety margin: A 5x leverage means the price can move only 20% against you before full liquidation. A 2x leverage means 50%. If the market moves 30% in a session (it’s already happened), those with 5x can’t survive.

2. Use stop-losses religiously: Not a 100% protection, but better than nothing. If you set a stop-loss at -10% and the price crashes 35%, you’ll still exit at -10% instead of being liquidated at -100%.

3. Monitor the funding rate: If the funding rate is extraordinarily positive (over 0.1% every 8 hours), you’re paying to keep your short position. It’s a market conflict signal. Evaluate if it’s worth it.

4. Diversify your short exposure: Don’t concentrate everything in BTC because it’s the most liquid. When the squeeze hits, it hits everyone simultaneously. Spreading positions reduces systemic risk.

5. Keep reserve liquidity: If you use leverage, don’t deploy all your capital. Keep 30-40% out of the market. When a margin call arrives, you can add collateral instead of being liquidated.

Conclusion: Volatility as a Health Indicator

The liquidation event of March 21, 2025, doesn’t represent a failure of the crypto market. It shows the market functioning as designed: efficiently eliminating excessive leverage and concentrated positions. The fact that nearly $300 million in liquidations were handled without systemic crisis is, ironically, a bullish sign of industry maturity.

However, for individual traders, it remains a stern reminder: leverage is a double-edged sword. Stories of 10x and 100x profits grab attention, but it’s the cascade of liquidations that teaches lasting lessons. Those who survive long-term in crypto markets are not the ones taking maximum risk but those managing risk intelligently. The cascading chart can happen again tomorrow, and when it does, you want to be on the right side of probability.

Frequently Asked Questions

Q: Can I know in advance when the next squeeze will happen?
A: No. If it were predictable, it wouldn’t exist. What you can do is identify warning signs: abnormal leverage concentrations on one side, extreme funding rates, technical gaps not closed. But even these don’t guarantee anything.

Q: If the platform is robust, why do traders lose money?
A: The platform is robust in handling technical flows. But it can’t protect you from your leverage choices. If you choose 25x and the market moves 4%, you’re out. The platform doesn’t let you fail, but your collateral does.

Q: Will this affect BTC’s long-term price?
A: No. Liquidations are short-term noise. Bitcoin’s spot price is driven by fundamental supply/demand, not derivative squeezes. What’s changing is the trader composition: less leverage, more caution.