The Fed’s interest rate cut cycle, which started recently, may put the long-term upward trend in BTC’s market dominance rate at risk. According to a report by SwissOne Capital, the Fed’s interest rate cuts could reduce Bitcoin’s dominance by providing broader gains in the crypto market.

According to the data, BTC’s market dominance rate, that is, Bitcoin’s share in the total cryptocurrency market, has increased from 38% to 58% in the last two years. This increase shows that Bitcoin is gaining faster than the overall crypto market, and the total value of the digital asset market has risen to over $2 trillion.

However, SwissOne Capital states that the Fed’s recent interest rate cuts leave limited room for further increases in this dominance rate of BTC.

“Bitcoin dominance shows a positive correlation with the Fed funding rate,” SwissOne Capital says, noting that BTC dominance rate has decreased in previous interest rate cut cycles. For example, in the previous interest rate cut cycle that started in the second half of 2019, Bitcoin dominance rate peaked at over 70% and then began to decline.

By late 2021, this rate had fallen to 40%, as central banks and governments around the world injected trillions of dollars into the financial system to cushion the economic effects of the COVID-19 pandemic. This process has led to an increase in risky investments and the rapid growth of other digital assets such as alternative cryptocurrencies (altcoins).

This positive correlation between the two rates was also observed in the interest rate hike cycles in 2022-23 and 2018. SwissOne Capital stated, “The start of the US interest rate cut cycle indicates that the upward movement of the Bitcoin dominance rate is limited if history repeats itself.”

So, if past trends are repeated, a significant increase in Bitcoin’s market dominance rate may not be expected.

According to market expectations, investors predict that the Fed will reduce interest rates by another 25 basis points by the end of the year, according to data from CME’s FedWatch tool. Bitcoin dominance rate has formed lower highs since 2015, which is seen as a sign of broader market growth.

Despite the strong rise observed in the last two years, Bitcoin’s dominance rate still remains well behind the previous peak of 73%. SwissOne Capital attributes this to the explosive growth of stablecoins. The market value of stablecoins reached a record level of $172 billion.

“With stablecoin market cap nearing 10% of the total market cap, we think Bitcoin dominance could peak somewhere between 60% from current levels, marking a major reversal,” says SwissOne Capital.

This analysis suggests that Bitcoin’s market dominance may be limited by broader crypto growth in the future. Interest rate cuts may lead to more risk taking in the market, which may cause altcoins to gain value and Bitcoin’s share in the crypto market to decrease.

The rapid growth of stablecoins could further weaken BTC’s dominant position in the crypto market. As a result, the Fed’s rate cut policy could lead to a slowdown in Bitcoin’s dominance rate, creating opportunities for the broader crypto market.