Meme coins such as Dogecoin were not spared in the market slide earlier this week. Here’s a look at the extent of the damage now that the bears have eased off their assault and the dust has settled temporarily.
One of the most notable observations about Dogecoin was that its open interest dropped to as low as $1.41 billion.
This was noteworthy because it was the lowest level of open interest that the king of the meme coins achieved in the last 6 months.
For context, Dogecoin’s open interest peaked at just over $6 billion in mid-September, which was also its highest OI figure in history. This means it cooled down by roughly 75% from its peak to its lowest low.
The sharp drop undid all the open interest that Dogecoin gained in Q3. A clear sign that this was a liquidity flush from the derivatives markets.
Unraveling the Impact of Derivatives Demand on Dogecoin Price Action
The derivatives liquidity exit was also accompanied by heavy liquidity outflows. Dogecoin price traded at $0.16 at press time, which was equivalent to a 15% drop in the first week of November.
This also meant it was down by more than 47% from its highest price point in Q3.
The massive cool-down in Dogecoin open interest meant that the meme coin may now be less susceptible to leveraged liquidation-induced price volatility.
The surge in open interest in Q3 meant that DOGE was gaining popularity in the derivatives segment, especially on account of its position as the top meme coin.
The heavily discounted open interest also means spot demand will have a broader impact on its price movements with lower liquidation risk.
Speaking of spot netflows were still in favor of outflows in the last 2 days, albeit significantly lower. Net outflows pushed slightly over $6 million in the last 24 hours.
Spot flow data also confirmed that demand was relatively weak despite the recent discount. The weak demand in the spot segment also aligned with weak demand from the whale cohort.
Whales contributed to the sell pressure in the last 2 days, during which their net outflows on Binance and OKX surged above $5 million.
Meanwhile, the same category of traders executed about $75 million worth of Dogecoin long positions.
Dogecoin whale activity gestured weak bullish expectations just as was the case with previous periods where it experienced cooling sell pressure.
In other words, the king of the meme coins might still be at risk of more downside.
Dogecoin Price Action Mirrors its Performance in Q2 2024
The meme coin community has been wondering about Dogecoin’s next move. The next best thing to a crystal ball in this case could be a glance at past periods that delivered almost similar price action to its latest performance.
One such example could be its performance in Q2 2024, during which price demonstrated weak recovery attempts after a bullish Q1 performance.
Interestingly, robust rallies preceded both patterns. The same pattern saw further capitulation before the market embarked on a recovery.
If the pattern continues to play out, then DOGE price may be headed for another episode of capitulation.
Interestingly, this coincides with the lack of significant demand, especially from whales, despite discounted prices.
However, this does not necessarily mean that price will adopt a similar path. Diverging market factors may trigger a different outcome.