As of November 23, open interest in Dogecoin (DOGE) futures hit a staggering $4.6 trillion, breaking the previous record and increasing by 100%.
This data reflects the sharp increase in demand for leveraged trading in the market and deserves special attention. After all, the current price of DOGE is 35% lower than its all-time high of $0.74 in May 2021.
From November 3 to November 23, DOGE prices surged 224%, a gain that was likely driven by the derivatives market. This sharp rise could mean that DOGE is approaching a cyclical high, similar to the price action seen in April 2024.
From March 20 to March 28, the price of Dogecoin (DOGE) soared 82%, reaching $0.23 at one point, and the open interest in the futures market also reached a peak of $2.3 billion.
Due to the over-leveraged long positions, which led to a large number of forced liquidations, the price of DOGE fell by more than 15% in just 5 days. The subsequent adjustment lasted for 3 weeks, and the price fell by 40% from $0.23 until it fell to $0.14 on April 19.
So, does DOGE’s recent surge in open interest represent a similar risk?
To figure this out, we need to look at the funding rate for perpetual contracts. In the derivatives market, the positions of buyers and sellers are always balanced, but the demand for leverage fluctuates. A positive funding rate usually means that buyers are paying a fee to maintain their positions, indicating a strong demand for leverage in the market.
Currently, the monthly cost of maintaining a DOGE long leveraged position is about 2%, which is in the neutral range commonly seen in the market (between 0.5% and 2.1%). Although the interest rate briefly surged to 7.5% on November 23, this figure does not fully reflect the normal leverage cost because the interest rate is recalculated every 8 hours. Unlike DOGE's previous price increases, this increase was mainly driven by trading activity in the spot market.
While DOGE’s 161% rally on Nov. 25 looks quite remarkable, it has lagged behind some other cryptocurrencies like Stellar (XLM), Cardano (ADA), and XRP (XRP) in comparison.
It is uncertain whether the factors driving the increased demand for DOGE leverage are consistent with the earnings patterns of those famous “dinosaur” altcoins before 2018.
For example, if DOGE’s price increase is mainly due to Tesla and SpaceX CEO Elon Musk’s frequent posts about Trump’s new initiative, called D.O.G.E., then DOGE may behave differently from other altcoins. If DOGE’s rise is indeed related to this political development, it may deviate from the market rules of traditional cryptocurrencies.
Considering the historical background of Dogecoin, it is more like an interesting project driven by the community, rather than trying to change the world with blockchain technology like some "dinosaur" altcoins. At the same time, the widespread popularity of Shiba Inu as a mascot may also drive the price of DOGE up, making it somewhat independent of the market performance of other cryptocurrencies.
As for the sharp increase in DOGE open interest, there is no immediate risk of cascading liquidations as long as the demand for leverage in the market remains balanced.
