Uptrend in Bitcoin’s Dominance Rate Threatened by Fed Rate Cut Cycle, Crypto Asset Manager Says

Over the past two years, Bitcoin’s influence or proportion in the overall market value, often referred to as its dominance rate, has climbed significantly from 38% to 58%, as reported by TradingView. This means that Bitcoin has experienced quicker growth compared to other sectors of the market, driving the total worth of digital assets to surpass $2 trillion at a rapid pace.

According to SwissOne Capital, Bitcoin’s dominance rate may not see significant further growth due to the Federal Reserve’s recent reduction of interest rates by 0.5%, signaling the initiation of an “easing cycle.

In a recent market report, SwissOne Capital pointed out that the level of Bitcoin’s influence (dominance) tends to increase when the Federal Funds rate rises. This observation is based on the decrease in Bitcoin’s dominance during periods when the Fed has reduced interest rates in the past.

The graph demonstrates that Bitcoin‘s influence reached over 70%, but it started decreasing when the easing period began in the latter part of 2019.

In late 2021, the metric dropped close to 40% due to central banks and governments globally pumping trillions into the economy as a response to the coronavirus pandemic. This massive injection resulted in unparalleled risk-taking across all financial sectors, including alternative cryptocurrencies (non-Bitcoin digital currencies).

The positive correlation between the two was also evident through the 2022-23 and 2018 rate hike cycles.

According to SwissOne Capital, the current reduction in interest rates by the United States suggests that there may not be much room for additional growth if past trends are any indication.

According to the Federal Reserve’s FedWatch tool, many traders anticipate that the Fed will lower interest rates by a quarter point before the year ends.

Lower highs

Over the past two years, there has been an impressive increase, but it hasn’t yet reached the earlier high of 73%. This could be because of the rapid expansion of stablecoins, as evidenced by their all-time high market capitalization of $172 billion.

SwissOne Capital stated that the market capitalization of stablecoins is nearly 10% of the overall market, which they believe indicates that the dominance of Bitcoin could be reaching its peak between the current levels and approximately 60%. They further suggest that a significant shift or reversal might follow after this point.