The recent news from SwissOne Capital warns that the Bitcoin dominance rate may be at risk due to the Federal Reserve rate cuts. The BTC dominance rate, which measures Bitcoin’s share in the total market capitalization, has been on the rise over the past two years, increasing from 38% to 58%. This growth has outpaced the wider market, with the total digital asset market value doubling to over $2 trillion.
According to SwissOne Capital, the Federal Reserve’s recent rate-cutting cycle could potentially stall the uptrend in Bitcoin’s dominance rate. The correlation between Bitcoin dominance and the Fed Funds rate has been historically positive, with the dominance rate declining during previous rate-cutting cycles. The chart provided by SwissOne Capital and TradingView shows that Bitcoin’s dominance peaked above 70% and began to decline as the easing cycle started in the second half of 2019.
The unprecedented injection of trillions of dollars into the financial system by central banks and governments in response to the impact of the coronavirus pandemic has led to increased risk-taking in alternative cryptocurrencies (altcoins) and tokens other than Bitcoin. This has contributed to the decline in Bitcoin’s dominance rate to nearly 40% in late 2021.
Despite the impressive two-year surge in Bitcoin’s dominance rate, the metric is still well below its previous peak of 73% in 2015. The growth of stablecoins, with a record market capitalization of $172 billion, may explain why Bitcoin’s dominance rate could be nearing its peak before a major reversal occurs.
Looking ahead, traders are expecting the Federal Reserve to reduce rates by another 25 basis points by the end of the year, according to CME’s FedWatch tool. This further rate cut could limit the potential upside for Bitcoin’s dominance rate, as seen during previous rate-cutting cycles.
In conclusion, the recent Federal Reserve rate cuts pose a risk to the ongoing uptrend in Bitcoin’s dominance rate. Investors and market participants should closely monitor the relationship between the Fed’s interest rates and Bitcoin’s dominance rate to gauge potential market movements. The future of Bitcoin’s dominance in the cryptocurrency market remains uncertain as external factors continue to influence its trajectory.