The ongoing rise in Bitcoin’s (BTC) dominance rate may face a significant challenge from the U.S. Federal Reserve’s recent rate-cutting cycle, according to SwissOne Capital, a prominent crypto asset management firm. Historically, BTC dominance and U.S. interest rates have shown a positive correlation, suggesting that further rate cuts could stall the current uptrend in Bitcoin’s market share.
Over the past two years, Bitcoin’s dominance rate has surged from 38% to 58%, signaling its outperformance relative to the broader cryptocurrency market.
This rise has occurred alongside the doubling of the total digital asset market capitalization to over $2 trillion, according to data from TradingView.
However, SwissOne Capital has identified a key concern: the Federal Reserve’s decision to reduce interest rates by 50 basis points, marking the beginning of an easing cycle. According to the firm’s market update, such cycles have previously coincided with declines in BTC’s dominance. The last peak in dominance occurred in the second half of 2019 when Bitcoin’s share exceeded 70%, only to decrease as the Fed commenced its rate-cutting program.
In previous rate-cut cycles, particularly during 2019-2021, Bitcoin’s dominance fell as central banks injected liquidity into the global financial system, leading to increased risk appetite and growth in alternative cryptocurrencies (altcoins). A similar pattern was observed during the 2022-23 and 2018 rate hike cycles, reinforcing the relationship between BTC dominance and the Fed’s monetary policy.
“The recent start of the U.S. rate-cutting cycle certainly suggests that BTC dominance could face limitations in further growth if history repeats itself,” SwissOne Capital noted.
The outlook for further rate cuts is supported by the CME’s FedWatch tool, which shows that traders expect another 25 basis point reduction by year-end.
Lower Highs and Broader Market Growth
SwissOne Capital also highlighted that despite the impressive two-year rise, Bitcoin’s dominance has yet to reach its previous high of 73%, partially due to the rapid growth of stablecoins, which now represent a record $172 billion in market capitalization.
“With stablecoin market caps close to 10% of the total market cap, we believe this dynamic could cap Bitcoin dominance between current levels and 60% before a significant reversal occurs,” the firm added.
The crypto market awaits further developments as the macroeconomic environment continues to influence Bitcoin’s role relative to other digital assets.
