What U.S. Stock Market And BTC Have In Common

Bitcoin finished August in positive territory for the first time in the last 3 years. This growth was symbolic, only a few percent, however, it clearly boosted the traders’ confidence. Continuing its August recovery, Bitcoin successfully stepped into September as well. On September 1, BTC tested $12,000 resistance, however, an attempt to establish a foothold above this barrier once again failed. 

It’s worth noting that strong buying activity in the crypto industry coincided with the continuation of the bullish rally in the stock market, which is yet another indication that general risk sentiment among investors is closely correlated not only with the dynamics of classic financial instruments but also with digital assets. In other words, as long as market participants are ready to buy the overbought S&P 500, NASDAQ and Dow Jones, Bitcoin will have no problems with the inflow of additional investments.

What drives the markets up? The change in the strategy of the Federal Reserve in relation to the consumer price index has become a significant growth catalyst for the entire U.S. stock market. The new inflation targeting policy implies that the U.S. regulator will refrain from tightening its monetary policy even if inflation rises above 2%. The Fed actually confirmed its readiness to deal with high inflation, keeping the borrowing costs low. In other words, the Federal Reserve is likely to preserve its extremely dovish stance for quite a long time.

In addition to the Fed's soft policy, the bullish rally in the stock market continues to fuel expectations of additional stimulus from the U.S. Congress. U.S. lawmakers will return to work after the August holidays in mid-September and resume negotiations on a new program of financial assistance to the population. Also, preparations for the presidential election in November will be in full swing. If members of Congress fail to agree on the terms of financial aid to American consumers and companies, market sentiment could deteriorate, damaging President Donald Trump's ratings. Market participants believe that for this reason alone, the U.S. stock market will continue to update its record highs until the end of the presidential election.

The bottom line is that the U.S. stock market’s growth is backed by expectations of additional stimulus from the Congress, as well as the Fed's unwillingness to abandon its soft monetary policy, despite growing inflationary risks. In these conditions, only the assets that have inflation-hedging abilities can be an alternative to the stock market. Besides classic gold, these assets include Bitcoin. That being said, we recommend buying BTC/USD with the closest target at $ 12,500 in mind.