Memecoins Surge in Crypto Bull Cycle: Open Interest and Market Performances Explored
Summary:
The crypto bull cycle has seen a surge in memecoins, such as Pepe and WIF, which moved into the top 20 cryptocurrencies by market capitalization within a year of launch. Four of the top ten leading cryptos by open interest (OI) are memecoins, with Pepe at the forefront. Despite this boom, funding rates for memecoins remain negative, and a stark contrast exists in OI between the highest and lowest ranked cryptos. Open Interest, representing pending derivative contracts, indicates bullish momentum as it rises, showing increased activity from leverage traders.
The current bull cycle in the cryptocurrency market has seen an explosive interest in satirical cryptocurrencies, commonly known as memecoins. Both Pepe and WIF have experienced remarkable growth, breaching the top 20 cryptos by market cap less than a year since their introduction. A significant aspect of their success lies in the crypto leverage market, where investors bet on the coins' value either dipping or rising. Four of the ten leading cryptos by open interest (OI) are memecoins, with Pepe securing the top spot with an OI of $812.6 million, almost half of what Solana (SOL) holds at $1.7 billion. Other memecoins ranking in the top ten include Dogecoin (DOGE), Bonk (BONK), and Dogewifhat (WIF). However, Bitcoin (BTC) maintains its dominance with an OI of $11.1 billion, closely trailed by Ethereum (ETH) which holds an OI of $9.15 billion.
Another observation worth making is the stark contrast in OI between the highest and lowest ranked cryptos. While Bitcoin boasts an OI of $11 billion, Near Protocol (NEAR) at the tenth position commands just $230 million, embodying the notable disparity in investor interest.
The recent surge in memecoins' OI has been driven by bullish behaviour over the past few weeks. This happened when Pepe marked a record high, and WIF achieved a fresh high of over $3.30.
Open Interest represents the total number of outstanding derivative contracts yet to be settled. In futures contracts, there must be a buyer for every seller to settle the contract. A contract stays "open" once the buyer or seller initiates it until the other party closes it. OI goes up when new contracts are introduced, and falls when contracts are settled. OI provides continuous data, unlike trading volume.
A rise in OI often illustrates bullish momentum since leverage traders take on more contracts in expectations of price movements. Even though memecoin prices and OIs soared, funding rates across crypto exchanges for these coins remained negative. Funding rates reflect the cost of maintaining a position in a perpetual swap or futures contract compared to the asset’s spot price. Positive funding rates indicate an optimistic market sentiment, while a negative rate points to a pessimistic one.
Published At
5/28/2024 12:17:56 PM
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