Bitcoin's Dominance Rate Surges After U.S. Banking Crisis

Bitcoin's outperformance during the banking crisis indicates the cryptocurrency is the anti-dollar liquid play for investors, one portfolio manager said.

AccessTimeIconMay 4, 2023 at 8:06 a.m. UTC
Updated Jan 24, 2024 at 12:31 a.m. UTC

Bitcoin's (BTC) dominance rate, measuring the cryptocurrency's share in the broader market, has risen sharply since the onset of the ongoing U.S. banking sector instability almost two months ago.

Since early March, the dominance rate has increased from 42% to 22-month highs near 49%, indicating the top cryptocurrency's outperformance relative to the broader market, according to data tracked by the charting platform TradingView.

The SPDR S&P regional banking exchange-traded fund (ETF), which seeks to replicate the performance of an index derived from the regional U.S. banks, has tanked by 35% over the same time frame.

In March, three U.S. banks – Silicon Valley Bank (SVB), Signature Bank (SBNY) and Silvergate Bank (SI) – failed, triggering fears of a full-blown banking crisis. First Republic Bank (FRCB) became the latest victim of the banking crisis. To complicate matters, shares in Los Angeles-based lender PacWest Bancorp (PACW) plummeted over 60% on Wednesday.

However, U.S. Federal Reserve Chairman Jerome Powell said the banking sector is "sound and resilient."

According to Decentral Park Capital's portfolio manager, Lewis Harland, bitcoin's growing market dominance amid the banking sector instability and the slide in banking stocks is evidence of the cryptocurrency's strengthening appeal as anti-U.S. dollar play or bet on the dollar weakness just as gold and oil.

"You see outperformance of BTC within the crypto market when regional bank share prices collapse. This signals that BTC is the high-quality, anti-dollar liquid play for investors as the crisis unfolds further," Harland told CoinDesk.

Expectations for renewed liquidity easing by the Federal Reserve have strengthened amid the banking crisis, signal dollar weakness ahead. On Wednesday, the Fed raised interest rates by 25 basis points and opened the doors for a potential pause in June.

The dominance rate stood at 48.5% at press time, having recently set a high of 48.9%. (Decentral Park Capital)
The dominance rate stood at 48.5% at press time, having recently set a high of 48.9%. (Decentral Park Capital)

BTC's dominance rate is now probing the upper end of the multiyear range. A breakout would mean continued BTC outperformance, according to Harland.

"Bitcoin dominance is looking to break its three-year oscillation pattern," Harland said. "A break of 50% would likely signal a new market regime of prolonged BTC outperformance within the market."

Bitcoin picked up after regulators Silicon Valley Bank of March 10 and has rallied 48% to $29,100 since then, CoinDesk data shows. The run higher is reminiscent of the positive performance during the 2013 Cyprus banking crisis.

Edited by Parikshit Mishra.


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Omkar Godbole

Omkar Godbole is a Co-Managing Editor on CoinDesk's Markets team.