As a seasoned crypto investor with over a decade of experience in this wild world of digital assets, I’ve learned to never underestimate the power of memes, community spirit, and a charismatic figure like Elon Musk. The recent surge in Dogecoin (DOGE) open interest, despite its current trading price being 35% below its May 2021 peak, has me intrigued rather than alarmed.
On November 23rd, the total value of Dogecoin (DOGE) futures contracts open reached an unprecedented high of $4.6 billion, more than doubling the previous record. This substantial increase suggests a growing appetite for higher risk positions involving DOGE, as the cryptocurrency was trading approximately 35% lower than its May 2021 peak at $0.74.
Investors are worried that the significant surge in DOGE’s price from November 3 to November 23, which appears to be fueled by derivatives, could indicate a peak in the market cycle, similar to the pattern observed during April 2024.
From March 20th to the 28th, Dogecoin (DOGE) skyrocketed an astonishing 82%, peaking at $0.23 as its futures open interest soared to a staggering $2.3 billion. However, with many investors overleveraged in long positions, the subsequent correction was brutal. DOGE plummeted more than 15% within just five days, causing significant forced liquidations. This downturn persisted for three weeks, eventually leading the price to drop a painful 40%, bottoming out at $0.14 by April 19th.
DOGE leverage demand and Elon Musk’s influence
To determine if the current increase in Dogecoin open interest could pose a similar risk, it’s essential to investigate the rate of funding for perpetual contracts. In financial markets, long and short positions are consistently balanced, but the demand for leverage can change. A positive funding rate means that buyers are paying sellers to keep their positions.
At present, maintaining a leveraged long position in DOGE monthlyy costs roughly 2%, placing it within the 0.5% to 2.1% range that’s generally considered neutral. However, the temporary spike to 7.5% on Nov. 23 doesn’t represent standard leverage costs because the rate is reset every eight hours. In contrast to past DOGE price increases, this recent trend was mainly driven by direct trading activities in the market rather than leveraged positions.
It may initially appear that DOGE experienced a significant surge by 161% up until November 25th. However, when considering relative performance against other cryptocurrencies such as Stellar (XLM), Cardano (ADA), and XRP (XRP), it actually fell short in terms of growth rate during that time frame.
It’s unclear if the reasons for the higher demand for DOGE trading positions line up with the significant price hikes observed in older, popular cryptocurrencies, often referred to as “dinosaur coins” by some financial experts, which saw a rise in value before 2018.
If Elon Musk’s frequent posts about the D.O.G.E. initiative (Donald Trump’s initiative) on platforms like Twitter often contribute to Dogecoin’s price increases, it’s possible that Dogecoin could start behaving independently from other alternative cryptocurrencies. This team, consisting of Elon Musk and Vivek Ramaswamy, is focusing on improving the efficiency of the U.S. government.
As a researcher studying the intricacies of the cryptocurrency market, I find it fascinating how Dogecoin, initially conceived as a light-hearted community project, stands out among the more traditional “dinosaur coins” that aimed to transform the world with blockchain technology. The iconic Shiba Inu mascot associated with Dogecoin has garnered immense popularity, which could potentially drive its price upward, even independently of other digital currencies.
About the significant increase in Dogecoin (DOGE) open interest, if the level of borrowing stays evenly distributed, there’s currently no pressing worry about a chain reaction of forced closures among traders.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of CryptoMoon.
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2024-11-25 22:45