Major Financial Markets Hint At Promising Outlook For Bitcoin (BTC)

Bitcoin (BTC) is trading sideways once again as price prepares to make its next big move. The reason we are seeing this sideways consolidation is because major movements on BTC/USD often coincide with movements on major financial markets. For instance, the sharp decline of December, 2018 in BTC/USD had a lot more to do with the decline in S&P 500 (SPX) than Bitcoin (BTC) itself. The cryptocurrency market is still in its infancy and thus has to look up to major financial markets for direction. The stock market is going to play a pivotal role in the next financial crisis. So, when the S&P 500 declined and closed below the 21 Month EMA, BTC/USD also declined sharply because if the stock market goes down, then all speculative investments are going to take a hit.

Now, here is an interesting situation. The S&P 500 closed last month above the 21 Month EMA which is a big deal. This goes on to show that the market is going to keep on surging in the months ahead. However, if we look at investor confidence, the state of doom and gloom still prevails. Everybody is talking about the next financial crisis and how to prepare for it. There is no doubt that the stock market is terribly overbought and oversaturated at this point. However, we have often seen markets react irrationally at extremes. So, it would be extremely unwise to think that the market cannot keep on rallying from current levels especially when we have strong reasons to believe that it might.

The Federal Reserve seemed determined to pursue an aggressive quantitative tightening policy until recently. The general understanding was that they did not care what it did to the markets and for a while it seemed like that. The interest rate hikes coupled with the trade war with China dealt a terrible blow to the stock market. Apparently, the Fed underestimated effects of the trade war and eventually had to back down. In my opinion, this was all just a show to pave way for quantitative easing to bail out the stock market. More than 13% of companies that make up the S&P Composite 1500 cannot pay just the interests on their loans! This situation might have gotten a lot worse after the recent market sell-offs. In other words, the Fed is not going to just back off on raising interesting rates, it is going to yield to the demands of the stock  market to ‘help’ them.

The effects of this ‘help’ are going to be seen in other markets. As Bitcoin (BTC) is mainly paired to the US Dollar on most exchanges, we are going to see a strong rise in BTC/USD as the Fed prints more money to inject money into the stock market. The mainstream investor is not touching stocks at the moment as the sentiment is pretty pessimistic. This situation is not likely to change unless the Fed injects enough money into the market that the mainstream investor believes that things are back to ‘normal’. This is not the first time it has happened. The Federal Reserve has been doing this for decades and they have gotten really good at that. Anyone who expects the stock market to crash tomorrow is seriously underestimating the Fed’s ‘capabilities’.