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According to SwissOne Capital, the Federal Reserve’s (Fed) interest rate cut cycle could halt the long-term upward trend in Bitcoin’s (BTC) dominance rate. The asset manager anticipates that this situation might lead to a broader rise in the cryptocurrency market.
Bitcoin’s Dominance Rate Slows Down
In the last two years, Bitcoin’s dominance rate has risen from 38% to 58%, according to TradingView data. This increase in dominance reflects that the largest cryptocurrency has gained value faster than the overall market, helping the total market capitalization of cryptocurrencies exceed $2 trillion. However, SwissOne Capital suggests that with the Fed recently beginning a loosening cycle by cutting interest rates by 50 basis points, BTC’s dominance rate will likely experience only limited upward movement.
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Impact of the Loosening Cycle on the Altcoin Market
The interest rate cut cycle that began in the second half of 2019 was supported by central banks and governments injecting trillions of dollars into the economy to combat the economic effects of the coronavirus. During this period, the risk-taking trend in the cryptocurrency market increased, particularly for altcoins, which led to a decline in BTC’s dominance rate to around 40%. This positive correlation was also observed during the interest rate hike cycles of 2018 and 2022-23.
SwissOne Capital stated, “If history repeats itself due to the recent interest rate cut cycle in the U.S., we do not expect significant increases in Bitcoin’s dominance rate.” According to the CME FedWatch tool, investors currently anticipate that the Fed will reduce interest rates by another 25 basis points by the end of the year.
Since 2015, Bitcoin’s dominance rate has formed lower peaks, indicating broader market growth. Despite the impressive rise in the last two years, this rate remains significantly below the previous peak of 73%. This situation is largely attributed to the explosive growth of stablecoins, which have reached a record market value of $172 billion.
SwissOne Capital believes, “As the market value of stablecoins approaches 10% of the total market capitalization, Bitcoin’s dominance could peak between the current levels and 60%, followed by a significant reversal.”
