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Bitcoin’s (BTC) ongoing rise in dominance could face a significant challenge from the U.S. Federal Reserve’s latest rate cut cycle, according to SwissOne Capital, a leading crypto asset management firm.
Bitcoin’s Dominance Rate Faces Potential Stall Due to Fed Rate Cut Cycle, Crypto Asset Manager Says
Historically, BTC dominance and US interest rates have shown a positive correlation, suggesting that further rate cuts could halt the current uptrend in Bitcoin's market share.
Over the past two years, Bitcoin’s dominance has outperformed the broader cryptocurrency market, rising from 38% to 58%. This rise comes as the total digital asset market size has doubled to over $2 trillion, according to TradingView data.
However, SwissOne Capital has identified a key concern: The Federal Reserve's decision to cut interest rates by 50 basis points signals the start 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%, but then declined as the Fed began its rate-cutting program.
In previous rate cut cycles, particularly during 2019-2021, Bitcoin’s dominance declined as central banks injected liquidity into the global financial system, leading to increased risk appetite and the growth of alternative cryptocurrencies (altcoins).
A similar pattern was observed in the 2022-23 and 2018 rate hike cycles, strengthening the relationship between BTC dominance and the Fed's monetary policy.
“The imminent start of the US rate cut cycle certainly suggests that BTC dominance may face limits on further growth if history repeats itself,” SwissOne Capital said.
The outlook for further rate cuts is supported by the CME's FedWatch tool, which shows investors expect another 25 basis point cut by the end of the year.
*This is not investment advice.