Bitcoin Dominance Grows As Crypto Risk Appetite Remains Low

The crypto market has been moving in the red during today’s trading session with Bitcoin and Ethereum surrendering the past week’s gains. According to market capitalization, the first cryptocurrency seems to react to tomorrow’s Federal Open Market Committee meeting.

The U.S. Federal Reserve will likely announce an interest rate increase during this event. Although the projection called for an increase of 75 basis points (bps), the financial institution could surprise the markets with a 100bps rate hike to try and reduce inflation.

Consumer Price Index, a measure of inflation in U.S. Dollars, is at an all-time high 40 years ago. Fed officials have had to change their monetary policy, increasing interest rates, decreasing its balance sheets, and taking liquidity out of global markets.

The result is that Bitcoin and the cryptocurrency market are trending downward. The benchmark crypto saw a period of relative stability when it was able to stabilize at around $20,000, BTC’s price current level.

The Altcoins Sector was not as fortunate. Ethereum (ETH), Cardano ADA), Solana SL (SOL), among other major cryptocurrencies, fell below critical resistance. As Bitcoin dominance trended upwards, some altcoins returned to their 2020 levels.

This indicates uncertainty in crypto markets and a risk-off attitude. The metric saw a decline over the past two weeks on the back of expectations of mitigating inflation, supported by a drop in the price of commodities, and the announcement of a date for the Ethereum “Merge”.

Arcane Research’s data confirms the above. They report a drop in performance of their Large, Mid, Small Cap Index. The losses of these indexes were much greater than Bitcoin’s as BTC Dominance builds up bullish momentum, as can be seen in the below graph.

Bitcoin BTC BTCUSDT Crypto
Source: Arcane Research

Bitcoin Dominance Spike Indicates Uncertainty in Crypto Market

Arcane Research noted that the overall weakness in the sector is driven by a “natural rotation as traders seek safety in a falling market”. Stablecoin market share has increased in tandem with Bitcoin’s dominance.

This means that market participants have been buying stablecoins and Bitcoin to shield themselves from possible downside risks. According to the report:

Ether’s lack of strength relative to bitcoin has caused its market dominance to fall 0.34% over the last week. Bitcoin’s market share has increased by 0.47 percent. It is natural for bitcoin to fall as investors see it as less risky than ether.

Tomorrow’s FOMC meeting will decide the short-term fate of BTC dominance and the fate of larger cryptocurrencies.

BTC’s price moves sideways on the 4-hour chart. Source: Tradeview for BTCUSDT

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