Bitcoin’s dominance has reached a new cycle peak despite a price downturn, as investors are pivoting from altcoins. This shift is influenced by unexpectedly strong U.S. job growth and a more hawkish approach from the Federal Reserve.
Recent data highlights that Bitcoin (BTC) dominance has climbed to over 61%. This rise is attributed to two key factors: a jobs report showing stronger-than-anticipated growth in the U.S. and the Federal Reserve’s increasingly aggressive policy. When job growth surpasses expectations, it signals a robust economy. This can often lead to higher interest rates or delays in rate cuts, which can reduce liquidity in the financial markets. Rising interest rates increase borrowing costs, prompting investors to move away from altcoins and favor safer assets, thus driving up Bitcoin’s dominance despite the correction in its price. For instance, BTC dominance stood at 60.3% on November 5 but dropped to 53.9% by December 9 as altcoins rallied following the November U.S. elections.
This transition is also evident in the overall trend of the crypto market capitalization. The total market cap experienced a rise during the November altcoin surge but began to decline as Bitcoin regained its foothold. By early March, the crypto market cap had dramatically fallen from its post-election peak of $3.8 trillion in December (when BTC dominance was around 53%) to roughly $2.9 trillion. This represents a substantial decline of about $900 billion, signaling a major contraction in liquidity within the crypto market.
In spite of these trends, Bitcoin has shown a degree of resilience compared to altcoins. For context, Bitcoin’s value has decreased by 24% from its record high of $109K set in January, whereas Ethereum (ETH) fell to $1895 over the past month, and Solana (SOL) saw a 39% drop in the same timeframe.
Nevertheless, this price correction in Bitcoin aligns with the decline in market capitalization, indicating that the tightening liquidity is impacting its price. Analysts suggest that, due to the Federal Reserve’s current policies, it may be challenging for Bitcoin to maintain substantial price increases based solely on heightened liquidity. Future gains are likely to require “more patience,” suggesting that investors may need to wait longer for a gradual increase, as the Fed’s decisions could offset any beneficial impacts that increased liquidity might have.