Bitcoin's Price Hinge on Fed Timing as Short Squeeze Looms

Bitcoin’s price surged above $114,000 amid a broader shift in macroeconomic expectations driven by softer-than-anticipated U.S. inflation data. The latest Producer Price Index (PPI) for August showed a year-over-year decline to 2.6%, significantly below the forecasted 3.3%. Core PPI, excluding food and energy, fell to 2.8% from 3.7%, reinforcing expectations of an imminent Federal Reserve rate cut. These developments have intensified speculation that the Fed may reduce rates as early as September 2025, a move that historically has been a catalyst for Bitcoin’s upward momentum.

Market analysts have drawn parallels between the current PPI trend and previous Fed easing cycles. According to Skew, a market analysis firm, producer inflation often lags behind consumer inflation by one to three months, meaning that the broader inflationary easing observed in the PPI could eventually be reflected in the more closely watched CPI data. However, traders remain cautious, as sticky CPI readings—particularly if they come in higher than expected—could delay the rate-cut timeline.

Bitcoin’s price action has followed a familiar pattern in the wake of Fed policy expectations. Historical onchain metrics, including the Market Value to Realized Value (MVRV) and Whale Ratio, indicate that Bitcoin typically experiences short-term turbulence following rate cuts, before entering a prolonged bullish phase. For example, in March 2020, the Fed’s rate cuts caused MVRV to drop near 1 as speculative gains collapsed, while the Whale Ratio spiked as large holders sold off. However, as liquidity flooded in, MVRV rebounded and whales began accumulating, ultimately supporting the 2020–2021 bull run. A similar dynamic occurred during the late 2024 easing cycle, with a temporary dip followed by a strong rebound. This historical consistency suggests that while near-term volatility is possible, the overall trajectory remains bullish if the Fed proceeds with rate cuts.

Meanwhile, the short-term price action remains volatile as Bitcoin struggles to break key resistance levels. On September 10, BTC briefly dipped below $110,000 following the release of weak U.S. jobs data, which revised the 12-month employment figure downward by 911,000 jobs. Despite a partial recovery, the cryptocurrency faced rejection at the $112,000 level, raising concerns about a potential bearish correction before any reversal can take hold. Traders and analysts have highlighted the importance of reclaiming $114,000 on a daily timeframe, as failure to do so could prolong the current dip and increase the likelihood of a deeper pullback toward $100,000.

The liquidation map for Bitcoin also highlights a growing risk of a short squeeze as the price moves closer to $115,000. According to CoinGlass data, nearly $16 billion in leveraged short positions across major exchanges are at risk of being liquidated in this zone. A sharp move through $115,000 could trigger a cascade of forced short coverings, potentially accelerating Bitcoin’s price higher. Additionally, the concentrated short liquidation zone suggests that late short sellers could face heavy losses if bulls maintain control and push the price beyond this critical level.

In the broader macroeconomic landscape, gold has outperformed both Bitcoin and equities in recent weeks, fueled by expectations of higher long-term inflation and increased U.S. deficit spending. This has led some analysts to caution that the Fed’s September rate cut may be its only move of the year, as inflationary pressures continue to build in certain inflation-sensitive segments of the capital markets. The rise in gold’s appeal as a global safe-haven asset underscores the ongoing uncertainty in the market, with investors seeking protection against potential economic headwinds.