When Dogecoin's (DOGE) Open Interest Reaches $1.4 Billion, Will Memecoins Finally Correct?

DOGE surged by 95% within a week, yet analysts indicate that the bullish momentum is just beginning.

Source: www.coinkolik.com

For over a decade, Dogecoin has remained a central figure in the memecoin craze, consistently delivering remarkable gains. Its recent surge, including a staggering 95% uptick in the last seven days, has captured significant attention. However, this rally coincides with Dogecoin's futures open interest hitting an all-time high of $1.4 billion, leading to speculation about potential over-optimism among investors.

Could Dogecoin Replicate The Gains of Ten Times From Earlier Cycles

Certain analysts suggest that without a DOGE surge, there can't be a full-fledged altcoin season, a notion supported by its consistent performance and impressive $24 billion market capitalization, securing its position as a top-10 cryptocurrency. Technical analysts claim that Dogecoin is mirroring previous bullish cycles characterized by substantial gains following 22 months of consolidation. One instance is highlighted in a post by user ali_charts on the X social network.

First and foremost, it's essential to acknowledge that price charts presented on a logarithmic scale often downplay past price fluctuations, potentially leading to overlooking events like the 120% surge in July 2020 or the 145% gains in October 2022, categorizing them as part of a sideways market. Moreover, questioning the definition of a bull market is valid, considering instances such as a 67% correction in just 40 days between June and July 2017, and a 47% retracement in February 2021.

Irrespective of whether the recent 95% weekly gains mark the beginning of a bull run or not, it's noteworthy that DOGE's futures aggregate open interest has never exceeded $1 billion before. Every previous occasion of exceeding $550 million in open interest has been followed by a notable correction in DOGE's price, prompting questions regarding a potential fundamental shift in leverage demand or whether retail investors are overly optimistic about the ongoing bullish trend. 

Notably, Dogecoin's current $1.4 billion open interest greatly exceeds past peaks, despite Dogecoin trading at a significant 77% below its all-time high. This surge in open interest indicates an unprecedented level of interest in leverage, whether measured in U.S. dollar value or in DOGE terms. However, attributing this increase solely to retail traders speculating on price without further context would be premature. The heightened demand for Dogecoin's futures open interest could potentially be attributed to institutional players utilizing DOGE's price as a gauge for the broader altcoin market. Additionally, sophisticated whales might be engaging in short positions on DOGE while simultaneously opening leveraged long positions on other memecoins. These scenarios, distinct from the typical reckless use of leverage by retail traders, should not necessarily be viewed as risky or detrimental.

Dogecoin Futures Suggest Bulls Are Becoming Too Hopeful

For a comprehensive understanding of leverage utilization, it's crucial to delve into perpetual contracts (inverse swaps), featuring an embedded rate recalculated roughly every eight hours to offset excess demand. A positive funding rate suggests bulls are seeking additional leverage. Recent data unveils that DOGE futures funding rate has surged to its highest levels in over 18 months, standing at 0.11%, equivalent to 2.3% per week. Traditionally, rates surpassing 1% per week signal excessive optimism, yet it's important not to hastily deem anything above this threshold as unhealthy.

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