• Per SwissOne Capital, the BTC dominance rate and the U.S. interest are positively correlated.

• The recent onset of the Fed rate-cutting cycle poses risk to the uptrend in the BTC dominance rate.

The U.S. Federal Reserve's (Fed) rate-cutting cycle may stall the ongoing prolonged uptrend in bitcoin's {{BTC}} dominance rate, bringing wider gains in the crypto market, according to crypto asset manager SwissOne Capital.

BTC's dominance rate, or the cryptocurrency's share in the total market capitalization, has increased from 38% to 58% in two years, according to data source TradingView. In other words, BTC has seen faster gains relative to the wider market, leading the doubling of the total digital asset market value to over $2 trillion.

Per SwissOne Capital, there is now limited scope for further upside in BTC's dominance rate as the Fed has recently cut rates by 50 basis points, kicking off a so-called easing cycle.

"Bitcoin Dominance is positively correlated to the Fed Funds rate," SwissOne Capital said in a market update, noting the decline in the dominance rate during the previous rate cutting cycles.

The chart shows bitcoin's dominance peaked above 70% and turned lower with the start of the easing cycle in the second half of 2019.

The metric fell to nearly 40% in late 2021 as central banks worldwide and governments injected trillions into the financial system to cushion against the impact of coronavirus, leading to unprecedented risk-taking in all corners of the financial market, including alternative cryptocurrencies (altcoins), or tokens other than BTC.

The positive correlation between the two was also evident through the 2022-23 and 2018 rate hike cycles.

"The recent start of the U.S. rate cutting cycle certainly points to little further upside if history is to repeat itself," SwissOne Capital noted.

Per CME's FedWatch tool, traders expect the Fed to reduce rates by another 25 basis points by the end of the year.

Lower highs

The BTC dominance rate has produced lower peaks since 2015 in a sign of broader market growth.

The latest two-year surge, though impressive, still leaves the metric well short of the previous peak of 73%. That's probably due to the explosive growth of stablecoin, reflected by a record market capitalization of $172 billion.

"With stablecoin market caps close to 10% of total market cap we believe it explains why Bitcoin dominance could be topping between current levels and 60% (maximum) before a major reversal ensues," SwissOne Capital said.