Dogecoin (DOGE) Open Interest at $1.4B – Time for a Memecoins Correction?
Dogecoin (DOGE) has been in the memecoin frenzy for over a decade, and continues to post wild gains, such as a 95% increase in the last 7 days alone. However, the rally was accompanied by a huge $1.4 billion in Dogecoin future open demand, which led to excessive optimism among investors.
Can Dogecoin repeat the 10x gains from previous cycles?
Some analysts argue that there is no altcoin season without the DOGE pump, and there is some truth to that, considering its history and $24 billion market cap makes it a top-10 cryptocurrency.
Technical analysts argue that Dogecoin is repeating the explosive gains of “past bull markets” after 22 months of consolidation. One example involves a post by user ali_charts on the X social network.
#Dogecoin's price action resembles patterns observed in past bull markets. If history repeats itself, we could see $DOGE go parabolic around April! pic.twitter.com/fL1J3CP3mR
— Ali (@ali_charts) February 26, 2024
First, one should note that the price charts subtract past price fluctuations in a logarithmic scale to easily forget the 120% pump in July 2020 or the 145% gain in October 2022 and take those as part of the equation. Side market. Additionally, the definition of a bull market can be seriously questioned, as some of these periods include a 67% correction in the 40 days between June and July 2017 and a 47% retracement in February 2021.
Whether or not the recent 95% weekly gain is the first phase of a bull run, total open interest in DOGE futures has never exceeded $1 billion. In fact, every DOG price with more than $550 million in open interest followed a sharp correction. So, either something has fundamentally changed in demand, or retailers are becoming overly optimistic with the momentum going forward.
Note that Dogecoin's current open interest of $1.4 billion is higher than previous highs, yet Dogecoin is 77% below its all-time high. Basically, the data shows that demand for consumption, whether measured in terms of dollar value or DOGE, has risen to previously unseen levels. However, without additional details, the increase in prices cannot be attributed to retailers.
An increase in open demand for Dogecoin futures can be attributed to institutional players using the DOGE price as a proxy for the altcoin market. Similarly, savvy whales can short DOGE, thereby playing on the downside, while simultaneously opening long (bull) positions on other memecoins. None of these cases should be considered dangerous or unhealthy, as they are very different from the typical careless use of retailers.
Dogecoin futures indicate bulls are becoming overly optimistic
To obtain the detailed information used, perpetual contracts (reverse swaps) should be analyzed, which include an embedded price calculated every eight hours to compensate for excess demand. A positive funding rate indicates bulls are more labor intensive.
According to data, DOGE's future funding rate rose to record highs of 0.11% in 18 months, equivalent to 2.3% per week. Typically, values above 1% per week indicate excessive optimism, but one should not immediately consider anything above such a limit to be unhealthy.
Related: Will Dogecoin Begin Its Big Rally After 70% Weekly Gain?
During a bull run, market makers and even whales can benefit from a temporary shortage of money, which can last for up to two weeks. Over time, as those entities collect cash, the amount of money will normalize, something not necessarily a price adjustment.
For comparison, funding on other coins such as Bitcoin (BTC), Solana (SOL) and XRP (XRP) currently stands at about 1.5% per week.
Thus, considering Dogecoin as a leading indicator for a sharp correction in the memecoin sector due to its current potential seems unfounded.
This article does not contain investment advice or recommendations. Every investment and business activity involves risk, and readers should do their own research when making a decision.
