Dogecoin futures open interest hits all-time high — Is it a top signal for DOGE?

Dogecoin (DOGE) futures open interest surged to an all-time high of $4.6 billion on Nov. 23, eclipsing the previous record by 100%. This escalation indicates a significant increase in leverage demand and is notable since DOGE was trading 35% below its peak of $0.74 from May 2021.

Traders are concerned that the 224% rally in DOGE from Nov. 3 to Nov. 23, driven by derivatives, might signify a cycle top, reminiscent of the price action seen in April 2024.

From March 20 and March 28, DOGE experienced an 82% price surge, reaching a high of $0.23 as its futures open interest peaked at $2.3 billion. The overleveraged long positions led to significant forced liquidations when DOGE corrected by more than 15% within five days. The correction persisted for three weeks, with the price declining by 40% to $0.14 by April 19.

DOGE leverage demand and Elon Musk’s influence

To assess if the recent surge in DOGE open interest signals a similar risk, it’s crucial to examine the funding rate of perpetual contracts. In the derivatives market, long (buyers) and short (sellers) positions are constantly matched, but the 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%, which falls within the 0.5% to 2.1% range considered neutral. The brief spike to 7.5% on Nov. 23 isn’t indicative of typical leverage costs, as the rate resets every eight hours. Unlike some prior DOGE price surges, this recent movement was predominantly fueled by spot market activity.

DOGE’s 161% rally through Nov. 25 might look impressive at first glance, but in comparative terms, it lagged behind peers like Stellar (XLM), Cardano (ADA), and XRP (XRP).

It’s uncertain whether the drivers behind the increased leverage demand for DOGE positions are aligned with the notable gains in so-called “dinosaur coins,” a term some analysts use to describe the surge in value of altcoins that were prominent before 2018.

For example, if Dogecoin’s price surge is largely driven by Tesla and SpaceX CEO Elon Musk’s frequent posts about the newly elected Donald Trump’s initiative known as D.O.G.E., it’s conceivable that Dogecoin could decouple from other altcoins. This department, co-led by Elon Musk and Vivek Ramaswamy, aims to enhance US government efficiency.

Given Dogecoin’s history as a fun community-driven project, unlike the “dinosaur coins” which aimed to revolutionize the world with blockchain technology, the widespread popularity of its Shiba Inu mascot might propel Dogecoin’s price upward independently of other cryptocurrencies.

Regarding the sharp rise in DOGE open interest, as long as leverage remains balanced, there’s no immediate concern for cascading liquidations among traders.