A market dynamic that characterized the steep bitcoin and the cryptocurrency market sell-off earlier this year is returning: traders are once again preferring dollars to the largest cryptocurrency.
This is evident from the trends in their respective dominance rates, a measure of a cryptocurrency’s share of the total market value of the digital asset market.
BTC dominance rate has retraced to 60% from 61.20% since May 5. At the same time, the dominance rate of Tether’s USDT, the largest dollar-pegged stablecoin, rose from 7% to 7.5%, while Circle Internet’s (CRCL) USDC, the second largest, rose from 2.8% to 3%.
In other words, money appears to be shifting back toward tokenized versions of the U.S. currency. This makes sense because bond markets suggest the Federal Reserve could keep interest rates elevated for longer than previously anticipated. Higher interest rates make the dollar and dollar-linked investments attractive. Meanwhile, assets like bitcoin offer no inherent yield or cash flow.
This is not the first time this has happened this year. A similar scenario occurred in late January, just before the BTC sell-off accelerated, causing prices to fall to $63,000 in early February. Therefore, it is necessary to closely monitor these trends.
Bitcoin was recently trading near $75,900, having hit lows near $75,200 earlier today following reports of a large block trade in BlackRock’s bitcoin ETF, IBIT. During the transaction, shares worth more than $1 billion changed hands.
The 11 spot ETFs lost more than $333 million on Tuesday, following outflows of $2.26 billion in the past two weeks. Meanwhile, gold and precious metals funds have been attracting money from investors. Talk about rotation!
Ether (ETH), XRP, solana (SOL), and the CoinDesk 20 index have each fallen about 2% in 24 hours.
“If cryptocurrencies once again act as a barometer of sentiment in global financial markets, this looks like an early sign of a reversal toward profit-taking,” said Alex Kuptsikevich, chief market analyst at FxPro. “Investors may prefer to take their money off the table before the start of summer, starting with the riskiest segment.”
In traditional markets, Nasdaq e-mini futures traded at record highs above 30,000 points and WTI oil fell 3% to $90 per barrel. The US ADP employment report due out today could add volatility to the markets. Stay alert!
Read more: For an analysis of current activity in altcoins and derivatives, see Crypto Markets Today. For a complete list of this week’s events, check out CoinDesk’s “Crypto Week Ahead.”
What is trend?
Today’s sign
The chart shows the trends in bitcoin, USDT, and USDC dominance rates since May 5.
While BTC’s share of the total crypto market has decreased, the share of dollar-pegged tokens has increased.
These diverging trends point to a renewed trader preference for the US currency, a sign of capital flight to safety and potential risk aversion going forward.
