DOGE rallied 95% in a week, but analysts signal that the bull run is only starting.DogecoinDOGEtickers down$0.16
has been at the heart of the memecoin frenzy for over a decade, and it continues to post wild gains, such as the 95% increase in the past 7 days alone.
However, the rally has been accompanied by a record-high $1.4 billion futures open interest in Dogecoin, triggering speculation of excessive optimism among investors.
Can Dogecoin repeat the 10x gains from previous cycles?
Some analysts argue that there is no altcoin season without a DOGE pump, and there is some truth to that, given its track record and $24 billion market cap, making it a top-10 cryptocurrency.
Technical analysts argue that Dogecoin is repeating “past bull markets” of explosive gains after 22 months of consolidation. One such example includes a post from user ali_charts on X social network.
Firstly, one should note that price charts in a logarithmic scale tend to minimize price oscillations in the past, making it easier to ‘forget’ the 120% pump in July
2020 or the 145% gains in October 2022 and attribute those as part of a lateralized market. Additionally, the definition of a bull market can be seriously questioned,
as some of those periods include a 67% correction in 40 days between June and July 2017 and a 47% retrace in February 2021.
Regardless of whether the recent 95% weekly gains are the initial phase of a bull run or not, DOGE’s futures aggregate open interest had never been above $1 billion.
In fact, every previous venture above $550 million open interest has been followed by a sharp DOGE price correction. So, either something has fundamentally changed in the leverage demand,
or retail is being overly optimistic with the bullish momentum.
Note that Dogecoin’s current $1.4 billion open interest is significantly higher than previous peaks, yet Dogecoin is trading 77% below its all-time high.
In essence, data shows that the interest in leverage has surged to levels previously unseen,
regardless of being measured in U.S. dollar value or in DOGE terms. Still, one cannot attribute the increase to retail traders gambling on the price increase without further details.
An increased demand for Dogecoin’s futures open interest could be explained by institutional players using DOGE’s price as a proxy for the altcoin market. Similarly, savvy whales could be shorting DOGE,
thus betting on the downside, while simultaneously opening leverage long (bull) positions on other memecoins.
None of these cases should be deemed risky or unhealthy, given that they vastly differ from retail traders’ typical reckless use of leverage.
Dogecoin futures indicate bulls are getting overly optimistic
To get a detailed picture of how leverage is being used,
one should analyze the perpetual contracts (inverse swaps), which incorporate an embedded rate typically recalculated every eight hours to
compensate for excess demand. A positive funding rate indicates bulls are the ones demanding additional leverage.
