Caution below! Dogecoin risks further declining after hitting key support

Dogecoin (DOGE) is potentially at risk of losing critical support if the price falls from the ascending channel it has been in for the past 53 days. Although technical analysis is not an exact science, a daily close below $ 0.26 will likely invalidate the current move.

Price of the DOGE / USD pair in FTX. Source: TradingView

In addition to the Bitcoin-driven headwinds, weighing on the price of DOGE, this week, The meme token underwent a software update and users were asked to implement version 1.14.5. Two major security patches were involved: “Remote Code Execution on Dogecoin QT” (CVE-2021-3401) and “Exposure of Sensitive Information on Unix Platforms” (CVE-2019-15947).

The latest version finalized a new minimum fee recommendation, following the reduction of the relay and mining defaults from a previous version. Additional changes included Berkley DB and OpenSSL updates and SLIP44 support for the HD wallet diversion path.

Binance had problems after the update

Although users and developers did not experience any setbacks from the changes, Exchange Binance unexpectedly suspended all withdrawals from the Dogecoin network on November 11.

@michilumin, a core developer of Dogecoin, explained that Binance had pending transactions due to insufficient fees for a couple of years. Despite the recommendations of DOGE developers, the exchange was unable to redirect those dormant transactions to its own wallets.

As update 1.14.5 successfully lowered fees, those pending transactions were finally approved, unbeknownst to Binance.

Interestingly, in February, Binance founder CZ raised concerns about the “centralization” and “abandonment” of Dogecoin.

Futures markets could have driven the DOGE correction

Surely, the withdrawal restriction news from Binance could have been behind the recent price weakness to $ 0.25. Still, it is also possible that derivatives markets played a role because Dogecoin’s open interest was facing key resistance.

Aggregate open interest of Dogecoin futures. Source: CoinGlass

Unlike volume data, open interest in futures contracts provides a better picture of investors’ total risk exposure. Regardless of trading activity, which may momentarily falter after strong price movements, open interest will remain high as long as players keep their positions open.

DOGE / USD price in FTX, logarithmic scale. Source: TradingView

See how the previous 4 attempts to break the $ 1 billion mark of open interest in futures resulted in major price corrections. Currently, the indicator stands at USD 850 million, so the imminent risk seems to have been left behind.

However, a positive price movement of 17% to $ 0.30 could see the DOGE derivatives metric once again hit the dreaded $ 1 billion of open interest. There is also the possibility that traders will reopen their leveraged positions and inflate open interest regardless of the price change.

Therefore, the classic chicken and egg problem presents itself to us: Was Binance’s problem the main cause of the recent dip below the 53-day rising channel, or was it destined to happen due to excessive leveraged positions?

In any case, DOGE traders should keep a close eye on that derivatives indicator to avoid any further surprises.

The views and opinions expressed here are solely those of the Author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trade move involves risk, you should do your own research when making a decision.

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