Dogecoin Futures Rack Up Nearly $90M in Liquidations

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Dogecoin Futures Rack Up Nearly $90M in Liquidations

Dogecoin trading the last weekend saw the meme coin reach a market cap of over 10 billion dollars and up over 90% in value compared to the last week of trading as it became one of the largest liquidators in the futures market.

The crypto futures market saw a very volatile trading session after it was confirmed that Elon Musk had finalised his purchase of the Twitter social media platform. Fifty-two million dollars of the liquidated figures came from Traders that tried to Short the price of the meme coin. But soon after the announcement came that Elon Musk had secured the Twitter sale, the Dogecoin chart lit up, and the price immediately started to rally, liquidating an immense amount of short sellers.

Leverage trading and liquidations

Liquidations occur when an exchange forcefully closes an open position of a trader when the market goes against them, and they can no longer afford the initial margin placed on the position with leverage. In essence, the traders borrow money against the capital that they put down; when the debt grows beyond their ability to pay it back, the exchange will close their position, and the trader will forfeit their initial capital.

When the trading exchange closes a short position essentially, the trader needs to buy back the stocks from the market to be able to settle their debt with the exchange, and this causes a small uptick in the price of the asset, which may cause further short positions to close and then again, in turn, causes the price to rise. This cascading effect of short positions that get closed and the price rising is called a short squeeze and can have a runaway effect causing the price to skyrocket instantly. This recent short squeeze caused the price of Dogecoin to more than double from 7 cents on Friday to over 15 cents on Sunday morning, And shortly after, the market pulled back to 11 cents by Monday.

After this price rally occurred, there is still $647 billion of open interest on the Dogecoin futures market,  meaning that this value of open contracts outstanding on the Dogecoin price still needs to be liquidated or fulfilled. This indicates an immense amount of money riding on the price of this meme coin.

Elon Musk has been a huge supporter of the Doge meme coin, and whenever there is a big mention of either Elon Musk or him making mention of the coin, the price of the Doge tends to rally.

In hindsight, knowing that the Twitter sale would be finalised this past weekend, smart market participants could have wildly profited from this announcement. Dogecoin fans closely follow Elon Musk’s Twitter feed for any hints or titbits that might make the price of Dogecoin move. Undoubtedly, these followers were on the right side of this price rally.

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