PATNA (CoinChapter.com)— The recent PEPE coin price rally attracted investor attention as the memecoin rose to chart a new ATH. However, Pepecoin’s rapid could become a bull trap for traders due to certain bearish cues.
PEPEcoin’s price started rallying on May 20 and spiked more than 65% to reach a new record high of $0.0000147 on May 23. Given the token’s recent gains, the primary threat to Pepecoin’s price action comes from profit-booking traders.
But that is not the only bearish risk that Pepecoin is facing.
Funding Rate and Open Interest Indicators
Two critical metrics, the funding rate and open interest, offer significant insights into the current state of the Pepecoin market. Recent data suggests that investors should approach the market with caution.
The sharp rise in PEPE’s open interest, alongside its price increase, points to a surge in speculative trading. As more traders enter the market, the number of outstanding derivative contracts, such as futures and options, has increased significantly.
This trend indicates that the rally is being driven by leveraged positions. When open interest rises in tandem with prices, it often signals heightened speculative activity.
Speculation creates a volatile environment. If prices start to decline, traders with leveraged positions may be forced to liquidate, exacerbating the drop. This scenario poses a substantial risk to the stability of PEPE’s price, highlighting the precarious nature of its recent gains.
Moreover, volatile funding rates further complicate the picture. The funding rate, which represents periodic payments between long and short positions in perpetual futures contracts, reflects market sentiment.
The data shows frequent shifts between positive and negative funding rates, suggesting a speculative and unstable market. The funding rate declined by over 33% in the recent 8-hour interval, indicating a shift in market sentiment toward bearish positions.
This bearish sentiment often precedes price declines as the market anticipates downward pressure. The oscillating funding rates reveal a market driven by short-term speculation rather than long-term confidence, underlining the fragility of PEPE’s current rally.
Pepecoin Faces Bearish Pressure From Technicals
Meanwhile, another bearish cue threatening the Pepecoin price rally is a technical setup called the ‘rising wedge.’
The pattern forms when an asset’s price consolidates between upward-sloping support and converging resistance lines resembling a wedge. Declining trading volumes often accompany a breakdown below the pattern.
The price target of the pattern is equal to the height of the back of the wedge. If Pepecoin price breaks below the bearish pattern, the token might fall to the theoretical price target near $0.00000272, a drop of over 81% from current levels.
Moreover, the memecoin‘s RSI on the 3-day chart (shown here) and on the weekly timeframe remains overbought, with scores of 76.75 (3-day) and 71.31 on the weekly charts. The RSI is a momentum indicator that measures asset price movements to identify overbought or oversold conditions.
Overbought RSI levels and upward-moving average trendlines indicate a strong presence of bulls in the market. However, traders often consider an overbought RSI level a bearish signal since the occurrence usually precedes a bearish reversal or consolidation phase for the underlying token.
PEPE’s recent price rally raises significant concerns about its sustainability. The sharp rise in open interest and volatile funding rates highlight a speculative market prone to rapid changes.
Additionally, the risks associated with PEPE are underpinned by the reliance on social media-driven hype, the lack of fundamental value, and the bearish technicals.
