Bitcoin’s Dominance in the Market Could Slow as U.S. Federal Reserve Cuts Rates

The U.S. Federal Reserve’s decision to cut interest rates could pause Bitcoin’s ongoing dominance in the cryptocurrency market. According to SwissOne Capital, a crypto asset management firm, this shift could open up opportunities for broader gains across the crypto sector.

Bitcoin’s Market Dominance and Recent Growth

Over the past two years, Bitcoin’s (BTC) market dominance, which refers to its share of the total cryptocurrency market capitalization, has risen significantly. According to TradingView, Bitcoin’s dominance grew from 38% to 58%, meaning it has outperformed many other cryptocurrencies. This growth has coincided with a rise in the total value of the crypto market, which now exceeds $2 trillion.

Despite this, SwissOne Capital suggests there may be limited room for Bitcoin’s dominance to continue increasing, especially following the Federal Reserve’s recent 50 basis point rate cut. This marks the beginning of what is known as an “easing cycle,” where interest rates are reduced to encourage economic growth. Historically, Bitcoin’s dominance has been positively correlated with the U.S. Federal Reserve’s interest rates, and previous rate cuts have been associated with a decline in Bitcoin’s share of the market.

Impact of Past Rate Cuts on Bitcoin’s Dominance

Looking back, Bitcoin’s dominance peaked at over 70% in mid-2019, but as soon as the Federal Reserve started cutting rates later that year, its market share began to drop. By the end of 2021, Bitcoin’s dominance had fallen to around 40%. This decline coincided with governments and central banks around the world injecting large amounts of money into the financial system to mitigate the effects of the COVID-19 pandemic. As a result, investors began taking on more risk, which led to significant gains for altcoins (cryptocurrencies other than Bitcoin).

SwissOne Capital pointed out that this pattern has repeated itself during previous rate cut cycles, including those in 2022-2023 and 2018. The firm suggests that if history is any indication, Bitcoin’s dominance could be nearing its peak. Additionally, the CME’s FedWatch tool indicates that traders expect the Federal Reserve to cut rates by another 25 basis points before the end of the year.

Despite Bitcoin’s recent dominance, the market has seen broader growth, as evidenced by lower peaks in Bitcoin’s share of the market since 2015. A significant factor in this trend has been the rise of stablecoins, which now represent around 10% of the total cryptocurrency market with a combined market capitalization of $172 billion.

SwissOne Capital believes that Bitcoin’s dominance may cap at 60% before a major reversal takes place, largely due to the expanding role of stablecoins in the crypto economy.