LSK Coin Rises 500% Then Plummets: Understanding the Risks of a Short Squeeze

LSK's price movement on September 13, 2026, provides an extreme example of how the crypto futures market can amplify an asset's volatility. 

Lisk (LSK) briefly surged more than 500% in 24 hours, breaking above US$2 before most of its gains were erased within hours.

What makes the move notable is not only the size of the increase, but also the number of positions that were subject to crypto liquidations. 

Of approximately US$41.13 million in LSK positions liquidated over 24 hours, around US$33.68 million came from short positions, while approximately US$7.44 million came from long positions.

This condition provides a clear picture of how a short squeeze can occur and why the use of leverage needs to be carefully considered when trading assets with relatively limited liquidity.

Key Takeaways

• A short squeeze occurs when rising prices force traders who are short selling to close their positions, with forced buying pushing prices even higher.
• For LSK, approximately US$33.68 million in short positions were liquidated, significantly more than the US$7.44 million in long liquidations.
• The LSK surge does not automatically indicate an immediate change in fundamentals. Futures, leverage, liquidity, and expectations surrounding the planned burn also contributed to amplifying the price movement.

What Is a Short Squeeze in Crypto?

A short squeeze is a condition in which an asset's rising price forces many traders holding short positions to buy the asset back.

In short selling, traders essentially take a position expecting the price to fall. In the derivatives market, traders can open short positions using leverage without directly owning the asset.

The problem arises when the price moves upward instead.

If the increase is large enough that a trader's margin is no longer sufficient, the position may be automatically closed by the platform. This process is known as crypto liquidation.

Liquidating a short position usually results in buying the asset to close the position. When many short positions are closed simultaneously, that buying pressure can accelerate the price increase.

This is the essence of a short squeeze: rising prices trigger short liquidations, liquidations create forced buying, and that buying pushes prices even higher.

Read Also: What Is Lisk Crypto? Complete Explanation!

How Did the Short Squeeze Occur in LSK?

LSK's price movement clearly illustrates this pattern.

According to data cited from Coinglass, total LSK liquidations reached approximately US$41.13 million over 24 hours. Short positions accounted for around US$33.68 million, or more than four times the long liquidations of approximately US$7.44 million.

During the same period, LSK briefly rose more than 500% to around US$2 before falling back toward US$0.80. Other data showed LSK reaching US$1.71 over a 24-hour period, representing a gain of approximately 512.7%.

The differences in price figures may result from different data collection times and market sources. However, both point to the same conclusion: LSK's volatility reached an extreme level.

Why Is Open Interest Important?

One indicator to consider when analyzing the potential for a short squeeze is open interest.

Open interest represents the value of futures contracts that remain open. When open interest is high and short positions are concentrated, a relatively small price increase can trigger a series of liquidations.

In the case of LSK, futures open interest stood at around US$42 million, while daily futures turnover reached approximately US$501 million. BeInCrypto also noted that LSK's spot order book was relatively thin.

Conditions like these can make price movements more sensitive. When spot liquidity is relatively shallow while derivatives activity is very high, changes in futures positions can have a significant impact on price.

Read Also:Bitcoin Short Squeeze Hits US$1.23 Billion, Why Did BTC Price Suddenly Rise?

What Is the Relationship Between Leverage and Funding Rate?

Leverage allows traders to open positions with a value greater than their available capital. On one hand, leverage increases capital efficiency. On the other hand, it also amplifies liquidation risk.

For example, a trader opens a short position with high leverage. If the price moves against the position by only a few percent, the loss relative to the margin can become much larger. When the margin reaches a certain threshold, the position may be liquidated.

Meanwhile, the funding rate can provide insight into the tendency of long and short positions in the perpetual futures market. 

A highly positive funding rate generally indicates stronger demand for long positions, while a negative funding rate may indicate greater short-position pressure.

However, the funding rate should not be used alone to predict a short squeeze. Open interest, volume, liquidity, and position structure also need to be considered.

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Is the LSK Surge Only Due to a Short Squeeze?

Not entirely.

There are fundamental factors that have also attracted market attention. Lisk officially announced that Lisk Chain will be discontinued on October 31, 2026, and that the project will transition toward a stablecoin-based financial operations platform for companies.

Lisk also submitted a proposal to burn 100 million LSK from the DAO treasury. If implemented, total LSK supply would fall from 400 million to 300 million tokens. The proposal also includes discontinuing the Lisk DAO and changing the staking mechanism.

The planned burn may be one factor considered by traders. However, a burn remains different from a short squeeze. 

A burn relates to changes in supply and token structure, whereas a short squeeze is primarily related to derivatives positions and liquidations.

Therefore, the LSK surge is more appropriately viewed as a combination of fundamental expectations and futures positioning pressure.

Read Also: How Traders Can Utilize Long and Short Positions

Lessons from LSK's Price Movement

The LSK case shows that an extreme price increase does not always mean that new spot demand is the sole driver.

When short positions become too large, an initial increase can create a domino effect. Traders begin closing shorts, other positions are liquidated, and forced buying further accelerates the price increase.

However, the same mechanism can also work in reverse.

Once the short squeeze loses momentum, buyers who entered late may face significant selling pressure. This helps explain why LSK was able to rise more than 500% before most of its gains disappeared within a few hours.

For traders, indicators such as open interest, funding rate, futures volume, liquidations, and liquidity depth are important for understanding whether an increase is supported by spot demand or instead driven by leveraged positions.

Read Also: Futures Trading Strategy: 11 Steps You Can Use

What Should Traders Pay Attention To?

LSK's price movement demonstrates that extreme volatility can occur within a very short period, especially for assets with relatively limited liquidity.

Traders using futures should understand liquidation distance, position size, leverage, and the risks involved when the market moves rapidly. Chasing an asset after it has risen hundreds of percent also carries different risks compared with entering a position before the move occurs.

In addition, Lisk's official developments should continue to be monitored. Lisk Chain is scheduled to shut down on October 31, 2026, while LSK holders on Lisk Chain need to unstake and bridge their assets to Ethereum before the deadline.

Therefore, the LSK short squeeze is not simply a story about a token rising hundreds of percent. It is an example of how derivatives market structure can amplify an asset's movement while creating significant risks for traders using leverage.

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FAQ

What Is a Short Squeeze?

A short squeeze is a condition in which rising prices force traders holding short positions to close their positions. This forced buying can accelerate the price increase.

Did LSK Experience a Short Squeeze?

Liquidation data provides strong indications of a short squeeze. Of approximately US$41.13 million in LSK liquidations over 24 hours, around US$33.68 million came from short positions.

What Is the Relationship Between Open Interest and a Short Squeeze?

Open interest represents the value of futures contracts that remain open. High open interest can make the market more vulnerable to cascading liquidations when prices move sharply.

Can the Funding Rate Predict a Short Squeeze?

The funding rate can help indicate the tendency toward long or short positions, but it is not sufficient to predict a short squeeze on its own. Open interest, volume, liquidity, and liquidation data also need to be analyzed.

Why Did LSK's Price Rise More Than 500%?

The surge was likely amplified by large-scale short position liquidations, high futures activity, relatively thin market liquidity, and expectations surrounding changes to Lisk's tokenomics and the project's new direction.