Bitcoin’s market dominance is on the rise. Here’s what it says about interest rate expectations
by James · March 23, 2023
Bitcoin’s market dominance has increased in March and is now up to levels not seen since June. A cryptoasset’s “dominance” measures how much of it makes up the total cryptocurrency market capitalization. Investors use it to determine which parts of the crypto market are outperforming or underperforming relative to their peers. When bitcoin dominance rises, it suggests that bitcoin is doing well, but more specifically, it means that they are outperforming altcoins. Bitcoin dominance has steadily increased since March 8, the day after Silvergate Bank announced its voluntary liquidation. It is currently at its highest level since June 10, according to TradingView. Michael Rinko, a research analyst at Delphi Digital, said he sees this move as “entirely macro-driven,” which partly explains, he added, why it’s limited to bitcoin. “Most of the flows are going into bitcoin as opposed to the broader crypto space,” he said. “It reflects a view that many macro investors have, that we are either at or very close to the bottom of this macro cycle.” The Federal Reserve and its inflation-fighting rate hike campaign have been a major focus for investors, but especially after the closings of Silvergate Bank, Silicon Valley Bank and Signature Bank. As the banking crisis has unfolded, bond yields have dropped significantly, Rinko noted. Bitcoin is sensitive to global liquidity. Last Sunday, the Fed worked with other global central banks to ensure that dollars would be available to stem any liquidity concerns in the financial system. Bitcoin rose 3% that day. “That coupled with narrative is why we’re seeing bitcoin run up and the move is only affecting bitcoin as opposed to the rest of the space,” Rinko added. Specifically, since the fall of the three US banks, the narrative that bitcoin can be an alternative means of transferring money or storing wealth has built, he said. Noelle Acheson, economist and author of the Crypto is Macro Now newsletter, added that bitcoin’s dominance is also partly thanks to the regulatory uncertainty plaguing other crypto assets in the market – in addition to the macro drivers. Investors have seen a regulatory crackdown on US crypto companies that began in February. So far this year, the Securities and Exchange Commission has filed an enforcement action against Kraken, a Wells notice of a future settlement against Paxos as well as Coinbase, starting Wednesday. The New York State Department of Financial Services has ordered Paxos to stop minting the Binance USD (BUSD) stablecoin, and recently and significantly decided to shut down crypto-focused Signature Bank, although the agency has maintained that the shutdown was not about crypto. These actions have been easily shrugged off by bitcoin investors, but bring a lot of uncertainty to other cryptoasset networks.
