According to SwissOne Capital, there is a positive correlation between Bitcoin's (BTC) dominance rate and U.S. interest rates.

Fed's Rate Cuts Threaten #BTC☀ Dominance Growth

The recent start of the Federal Reserve's rate-cutting cycle could disrupt the long-term growth of Bitcoin's dominance. According to crypto asset manager SwissOne Capital, this cycle may halt the current trend of Bitcoin's dominance over the cryptocurrency market. Bitcoin's dominance, which refers to BTC's share of the total cryptocurrency market capitalization, has risen from 38% to 58% over the past two years. This means that BTC has outpaced other cryptocurrencies in gains, pushing the total value of digital assets to over $2 trillion.

Limited Room for Further BTC Dominance Growth

SwissOne Capital suggests that there is now limited room for further growth in Bitcoin dominance, especially after the recent 50 basis point rate cut, which initiated a rate-cutting cycle. "Bitcoin dominance is positively correlated with the Fed Funds rate," the firm said in its market update, noting a decline in BTC dominance during previous rate-cutting cycles.

A chart shows that #bitcoin☀️ dominance peaked above 70%, but started to decline with the rate-cutting cycle in the second half of 2019. By the end of 2021, this dominance fell to nearly 40%, driven by the massive financial support provided by governments and central banks worldwide to counter the effects of the pandemic. This influx of funds led to unprecedented risk-taking in financial markets, including altcoins and other non-BTC tokens.

Historical Correlation Between Rates and BTC

The positive correlation between interest rates and Bitcoin dominance was also evident during the rate-hiking cycles in 2022–2023 and 2018. "The recent start of the rate-cutting cycle in the U.S. definitely points to further growth if history repeats itself," noted SwissOne Capital.

Market Expectations of Further Rate Cuts

According to the FedWatch CME tool, traders expect the Fed to cut rates by another 25 basis points by the end of the year.

Lower Highs in BTC Dominance

Bitcoin dominance has shown lower peaks since 2015, indicating broader market growth. While the recent two-year increase in BTC dominance is impressive, it remains below the previous peak of 73%. This is likely due to the explosive growth of stablecoins, reflected in a record market capitalization of $172 billion.

“With #stablecoin market capitalizations approaching 10% of the total cryptocurrency market cap, we believe this explains why Bitcoin dominance may peak between its current level and 60% before a significant reversal occurs,” said SwissOne Capital.

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