According to SwissOne Capital, BTC dominance and US interest rates are positively correlated.
The US Federal Reserve’s (Fed) interest rate cutting cycle could slow down the prolonged uptrend of Bitcoin Dominance, bringing greater returns to the cryptocurrency market, according to SwissOne Capital, a crypto asset manager.
BTC dominance, or Bitcoin's share of the total crypto market capitalization, has increased from 38% to 58% over the past two years. This means that BTC has grown faster than the overall market, helping push the total digital asset market value to over $2 trillion.
According to SwissOne Capital, there is not much room left for further growth in BTC dominance as the Fed just cut interest rates by 50 basis points, starting an easing cycle.
“Bitcoin dominance is positively correlated with Fed interest rates,” SwissOne Capital said in a market update, noting the decline in dominance during previous rate cutting cycles.
The chart shows Bitcoin dominance peaking above 70% and starting to decline as the easing cycle began in the second half of 2019.
The index dropped to nearly 40% by the end of 2021 as central banks and governments around the world pumped trillions of dollars into the financial system to mitigate the impact of the Covid-19 pandemic, leading to heightened risk in all corners of the financial markets, including altcoins beyond BTC.
The positive correlation between BTC dominance and interest rates was also evident in the 2022-2023 and 2018 rate hike cycles.
“Historically, the recent start of the US rate cutting cycle certainly suggests little room for further increases if history repeats itself,” SwissOne Capital said.
Traders expect the Fed to cut rates another 25 basis points by the end of the year, according to CME's FedWatch tool.
BTC dominance has been making lower highs since 2015, reflecting the broader market growth.
The increase over the past two years, while impressive, is still well below the previous peak of 73%. This could be due to the explosive growth of stablecoins, whose market capitalization has reached a record $172 billion.
“With stablecoin market capitalization close to 10% of total market capitalization, we believe this explains why Bitcoin dominance could peak at current levels and max out at 60% before a major reversal occurs,” SwissOne Capital noted.
