United States inflation data may fuel optimism among Bitcoin traders ahead of an anticipated September rate cut by the Federal Reserve — if inflation lowers as widely expected, according to a crypto analyst.

“Anyone holding short positions is likely to get burned and you could see a classic short squeeze trigger a rally,” Swyftx lead analyst Pav Hundal told Cointelegraph.

Hundal explained that there is “high investor confidence in the market” and that the year-on-year Consumer Price Index (CPI) “won’t surprise to the upside because of the way it’s calculated.” 

Low CPI print to spark speculation

He anticipates if August’s inflation-tracking Consumer Price Index (CPI) data “comes in low,” many investors will start speculating about a larger rate cut next week.

For months, analysts and market participants have been speculating that September is the month that the US Federal Reserve will lower interest rates.

On Sept. 4, this expectation was bolstered when the Fed chair Jerome Powell said that “the time has come.”

This followed July’s CPI results, which printed a 0.2% increase after a 0.1% decline in June, according to data from the US Bureau of Statistics.

Higher-than-expected CPI could trigger BTC sell-off

However, if inflation were to come in higher, Hundal declared it would be “a major surprise” and could potentially trigger a Bitcoin ( BTC ) sell-off.

“But the unimaginable keeps happening and if it does, you’d expect to see very heavy selling of risk assets,” he said.

If Bitcoin returns to $60,000 — a key level traders have been monitoring since April but haven’t seen since Aug. 30 — approximately $1.6 billion in short positions will be liquidated , according to CoinGlass data . 

Related: Bitcoin price eyes’ last dip’ before October breakout: Analysts

At the time of publication, Bitcoin is trading at $56,257.

A staggering amount of short positions are at risk if Bitcoin quickly rebounds to $60,000. Source: CoinGlass

Hundal noted that the $1.3 billion increase in Bitcoin Open Interest since Sept. 7 suggests that the market is split on where to next for Bitcoin’s price.

“The sheer volume of open positions right now tells me that investors don’t know what to expect next and that’s creating the potential for short-term vertical price movements.”

Meanwhile, crypto commentator AlphaBTC believes that the Sept. 10 spot Bitcoin exchange-traded funds (ETF) inflows indicate the market is “anticipating some good reads on CPI.”

On Sept. 10, spot Bitcoin ETFs saw cumulative inflows of $117 million, marking the highest level since Aug. 26, when inflows reached $202.6 million, according to Farside data .

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This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.