The open interest in Dogecoin (DOGE) futures surged to an all-time high of $4.6 billion on November 23, surpassing the previous record by 100%. This escalation indicates a significant increase in demand for leverage and is notable as DOGE has traded 35% lower than its peak of $0.74 in May 2021.
Traders are concerned that DOGE's price increase of 224% from November 3 to November 23, driven by derivatives, may signal a cycle peak, reminiscent of price movements in April 2024.
From March 20 to March 28, DOGE experienced an 82% price increase, reaching a high of $0.23 as open futures interest peaked at $2.3 billion. Over-leveraged long positions led to significant forced liquidations as DOGE adjusted more than 15% within five days. The correction lasted for three weeks, with the price dropping by 40% to $0.14 by April 19.
DOGE drives demand and influence from Elon Musk
To assess whether the recent increase in DOGE open interest signals similar risks, it is important to consider the funding rate of perpetual contracts. In the derivatives market, long (buyers) and short (sellers) positions are continuously matched, but leverage demand fluctuates. A positive funding rate indicates that buyers are compensating sellers to maintain their positions.
Currently, the monthly cost to hold a leveraged long position in DOGE is about 2%, within the range of 0.5% to 2.1% considered neutral. The short spike to 7.5% on November 23 is not a sign of typical leverage costs, as this rate resets every eight hours. Unlike some previous DOGE rallies, this recent move is primarily driven by spot market activity.
The 161% price increase of DOGE as of November 25 seems impressive at first glance, but in comparison, it still lags behind other coins like Stellar (XLM), Cardano (ADA), and XRP (XRP).
It remains uncertain whether the driving force behind the increased demand for leverage in DOGE positions is related to the significant rise of the so-called 'dinosaur money,' a term some analysts use to describe the rise in value of prominent altcoins before 2018.
For example, if Dogecoin's price rises sharply mainly due to frequent posts by Tesla and SpaceX CEO Elon Musk about Donald Trump's newly elected DOGE initiative, then Dogecoin may decouple from other altcoins. This division, co-led by Elon Musk and Vivek Ramaswamy, aims to enhance the efficiency of the U.S. government.
Regarding the history of Dogecoin as an interesting community project, unlike 'dinosaur money' aimed at revolutionizing the world with blockchain technology, the widespread popularity of the Shiba Inu mascot can drive Dogecoin's price up high without depending on other cryptocurrencies. In terms of the strong increase in open DOGE contracts, as long as leverage remains balanced, there are no immediate concerns about mass liquidations among traders.