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Dogecoin prices often rise and fall according to the whims of Elon Musk’s Twitter activity.
Dream time
Dogecoin
Prices continued to fall after a price jump earlier this week, when Elon Musk’s Twitter made his homepage logo an homage to the cryptocurrency meme. There are signs that a deeper correction may occur.
Dogecoin price is down by 6% over the past 24 hours, and it is down for the second day after being hit
bitcoin
by 30% on Tuesday, when Twitter changed its homepage logo to that of a Shiba Inu dog. Dogecoin is so called a memecoin because it was established as a reference to an internet joke involving a Shiba Inu dog, or “doge”.
And Elon Musk is a huge jokey cryptocurrency fan. He called himself a “Dogefather” and played his price for years via mentions on Twitter and TV, which tend to trigger a rally in digital asset prices.
But the link between Twitter and Dogecoin goes further than that. The meme icon has seen many parades since
Tesla
(Stock ticker: TSLA) The social media company’s CEO bought Twitter last year amid hopes Musk might integrate Dogecoin into Twitter in the future that includes widespread adoption of the digital asset in payments. While the recent stunt around the logo has reignited those hopes, it seems a little inconsequential.
The lack of fundamentals behind Dogecoin’s recent rally, combined with what looks like an overabundance among traders, means that memecoin may be due for a correction. The proof lies in the crypto derivatives market, where trading in the likes of futures contracts represents one of the most liquid markets in all of cryptocurrencies, and dwarfing trading in the “spot” digital assets themselves.
Traders have staked bullish bets behind Dogecoin, with open interest — or the total value in contracts outstanding — in Dogecoin perpetual futures contracts surging to nearly $600 million by Thursday, according to data provider Coinglass.
These are massively bullish bets, with Dogecoin “funding rate” firmly in positive territory. Funding rates are used to help ensure that the price of the Dogecoin spot currency – the token itself, as it is traded on exchanges such as
Coinbase Global
(COIN) – matches the price of the futures contract. When the futures price is higher than the spot rate – which indicates that most bets on prices are going up – the funding rate is positive. Then, the traders who take those positions have to pay the traders with the short positions, which induces some equilibrium in the futures market.
Dogecoin’s high open interest and skewed funding rate indicate that the market is unbalanced, which means that the correction could be violent if prices continue to swing against bullish traders. Traders often take these positions on margin or with borrowed money, and brokers can forcibly close out their positions if the market swings against them in a process called liquidation. Forced closing of positions can also trigger automatic sell orders, adding even more downward pressure to an already declining market.
It can take the fun – the real speed – of trading cryptocurrencies with funny names referring to internet memes.
Write to Jack Denton at [email protected]
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