Key Points
- Bitcoin’s dominance has reached a new cycle high, surpassing 61%, despite price correction.
- This surge is attributed to strong U.S. job growth and the Federal Reserve’s hawkish stance.
Bitcoin’s dominance in the cryptocurrency market has reached a new cycle peak, exceeding 61%, even in the face of price corrections.
Matrixport, a digital assets financial services platform, attributes this surge to two primary factors: the U.S. jobs report exceeding expectations and the Federal Reserve adopting a more hawkish stance.
Implications of Job Growth and Federal Reserve’s Stance
When job growth surpasses expectations, it’s indicative of a robust economy. This usually results in higher interest rates or a delay in rate cuts, leading to reduced liquidity in financial markets. The increase in interest rates makes borrowing more expensive, prompting investors to move from altcoins to safer assets. This transition is the reason for the increase in Bitcoin’s dominance, despite the price correction.
According to Matrixport’s data, Bitcoin’s dominance was at 60.3% on Nov. 5, but it dropped to 53.9% by Dec. 9 as altcoins surged following the U.S. elections in November.
Market Cap Trends and Bitcoin’s Resilience
This shift is also mirrored in the overall crypto market cap trend. The total market cap increased during the November altcoin rally but started to decline as Bitcoin regained dominance. By early March, the crypto market cap had significantly crashed from its post-election peak of $3.8 trillion in Dec. to roughly $2.9 trillion. This represents a drop of around $900 billion, underlining a significant contraction in the crypto market liquidity.
Despite these market fluctuations, Bitcoin has shown relative resilience compared to altcoins. For instance, the Bitcoin price declined by 24% from its all-time high of $109K achieved in January. In contrast, Ethereum (ETH) dropped to $1895 in the past month, while Solana (SOL) has decreased by 39% in the same period.
However, Bitcoin’s price correction aligns with the declining market cap, indicating that a liquidity dry-up is affecting its price. Due to the Federal Reserve’s stance, Matrixport analysts suggest that it will be challenging for Bitcoin to maintain significant price increases based solely on increased liquidity. Any further gains will likely require “more patience,” implying that investors will have to wait longer and the increase will likely be gradual. The Federal Reserve’s actions might counteract the positive effects of increased liquidity.