Dogecoin Faces $380M Liquidity Trap Amid Trump-Musk Feud

In the wake of the public spat between Donald Trump and Elon Musk, the cryptocurrency market, particularly Dogecoin, experienced significant volatility. The altercation, which saw Trump warning about the potential removal of EV tax credits and the cancellation of Musk’s government contracts, had a ripple effect across various financial sectors. Tesla shares plummeted, wiping out significant market value, while the crypto space also felt the impact, with Bitcoin dropping to a four-week low.

During Dogecoin’s last major drop, a significant amount of liquidity, worth more than $380 million, was trapped at $0.50. This liquidity trap, combined with the broader market sentiment, raised questions about Dogecoin’s ability to recover. The total memecoin market cap, which includes Dogecoin, is now significantly larger than it was in 2021, indicating a growing interest in these digital assets despite the recent volatility.

The public spat between Trump and Musk also triggered a risk-off move in the altcoin market, with the market cap falling, erasing early gains. This sharp market reversal caught leveraged long traders off guard, leading to a liquidation imbalance. The volatility in the crypto market highlighted the sensitivity of digital assets to political and economic events, as traders sought to navigate the uncertainty.

Despite the initial shock, there is optimism that the spat could provide traders with a buying opportunity. The scheduled call between Trump and Musk has sparked a rebound in the crypto market, suggesting that the situation may stabilize. However, the longer-term impact on Dogecoin’s price recovery remains uncertain, as the market continues to grapple with the fallout from the public spat.

At the time of writing, there seemed to be significant liquidity around the $0.50 zone. It was worth more than $380M DOGE, built up from the memecoin’s previous rally. Normally, large groups of short positions are followed by significant rallies after the selling pressure wanes. Before DOGE went on its last surge, it followed a similar pattern by building up at the bottom and then soaring steeply higher. At the time of writing, the chart underlined a potential mirror setup forming again. Should the falling trend reverse itself, a breakout to the upper liquidity collection around $0.50 should develop.

What’s more, the DOGE/BTC pair is now approaching a key support zone – eerily similar to the conditions seen ahead of DOGE’s legendary 2021 rally. At the same time, the network for DOGE has stayed strong. At press time, it boasted 7.97 million active addresses – more than USDT or XRP. With such a broader base, Dogecoin could handle the ups and downs of the market. Bitcoin was in second place with 55.39M holders behind Ethereum with 148.39M. For its part, DOGE’s rising number of users could prepare it for another uptick on the charts. And yet, if resistance levels are not broken, there might be a delay in price gains or a small drop in prices. Worth noting, however, that the outcome does not depend entirely on the level of activity and ease in trading.

The memecoin index has started to rebound after last month’s slide. Owing to this recovery, the total market value for memecoins is now already higher than it was in 2021. And yet, the Open Interest for all memecoins has not been very high. It had a value of only $3.2 billion, with daily trading volumes of $12 billion. These figures are significantly lower than the same for Bitcoin or Ethereum. The divergence between the prices of memecoins and Bitcoin suggested memecoins have not performed well recently. Even so, this category of altcoins tends to climb when BTC rallies. In fact, major price swings are evidence that the sector could attract new speculation in the future. Dogecoin and top memecoins may pick up again in the near future if there is a good shift in the crypto market. At the same time, since volume and interest have been low, a strong hike might need extra enthusiasm from retail and institutional traders.