20.09.202409:41 Forex Analysis & Reviews: Bitcoin Spread Its Wings

Sometimes, markets get ahead of themselves, and sometimes, they need time to digest the information received. With that in mind, it shouldn't be surprising that the S&P 500 hit its 39th record since the beginning of the year, the day after the Federal Reserve cut rates by 50 basis points. Investors were weighing whether such a significant step showed the central bank's concern about an approaching recession. Seeing no signs of that, they resumed buying stocks and other risky assets like Bitcoin.

The increased correlation between BTC/USD and U.S. stock indexes suggests that the main driver of cryptocurrency prices has once again become the global appetite for risk. And as we know, risk appetite grows when fed. The U.S. central bank gave the markets what they wanted – lowering borrowing costs by half a point to 5%, and now derivatives are pricing in another 70 bps cut by the end of the year.

Historically, stocks would rise rapidly if the U.S. economy wasn't in recession and the Fed was lowering rates. Bitcoin has a shorter history, but the large-scale monetary easing during the COVID-19 pandemic in 2020 allowed BTC/USD to establish a strong uptrend.

Bitcoin Performance

I don't think the monetary easing cycle of 2024 and 2025 will be an exception for stocks and digital assets. According to Fed Chair Jerome Powell, the U.S. economy is generally doing well, and there are no signs of an impending recession. GDP is slowing but still growing above trend, inflation is confidently moving toward the target, and interest rates are decreasing. This creates a Goldilocks scenario that is favorable for stock indexes and risky assets.

Bitcoin is no exception. For most of the year, it has been steadily following the same path as tech stocks, which are almost the primary beneficiaries of the start of the Fed's monetary easing cycle.

Dynamics of BTC/USD and the Tech Sector Index

According to SkyBridge, the combination of the Fed's monetary policy easing and transparency of crypto regulation will allow BTC/USD to reach a new all-time high. It doesn't matter who comes to power in the U.S.—both Republicans and Democrats are expected to advance legislation regulating the crypto industry, which will increase institutional investor confidence and encourage capital inflow into ETFs, boosting Bitcoin prices.

The only thing that could stop the bulls in the digital asset market might be a correction in the S&P 500, although it's too early to discuss that. The Fed has fueled risk appetite too strongly with its aggressive start to the rate-cutting cycle.

Technically, the rally in BTC/USD continues on the daily chart within the patterns of an Expanding Wedge and Wolfe Waves. Long positions built from the 55420-55720 range and strengthened on the breakouts of 58000 and 59000 make sense to hold. The target is the 71000 mark.