Dogecoin (DOGE) jumped nearly 50% this morning as ‘Dogecoin Killer’ Shiba Inu (SHIB) fell -10%, displaying signs of a mean reversion trade to bring the Dogecoin and Shiba Inu market caps to parity.
Mean reversion strategies attempt to capture profits as the price of asset returns to more normal levels, or the average. Such a strategy in your trading doesn’t necessarily indicate that the price will fall, only that two correlated assets are brought back in line with each other.
The mean could also simply move up to meet the price. That would also constitute reversion to the mean because the price is back in line with its average. While reversion to the mean occurs regularly, prices rarely stay exactly at the mean for long.
Wednesday’s mean reversion trade centered at Dogecoin and Shiba Inu, the two large-cap cryptocurrencies correlated by both meme value and market caps.
DOGE spiked to over $0.33 from under $0.23 last night, while Shiba Inu dropped to $0.00005 from last night’s $0.00008 high. The latter even slipped above Dogecoin with a $36 billion market cap for a few hours, above Dogecoin’s $31 billion marketcap.
Traders stepped in to short (meaning to bet against and profit from falling prices) Shiba Inu at the $0.00008 price level. Data from analytics tool Bybt shows nearly $50 million worth of SHIB longs were liquidated as prices fell, part of a broader market fall that liquidated $232 million across other cryptocurrencies in total.
Shiba Inu was a traders’ favorite yesterday. Over $36 billion of SHIB traded as of Wednesday night, surpassed only by Bitcoin’s $45 billion and Tether’s $75 billion. It become the second-most traded asset—ahead of more technically-astound blockchains like Ethereum and Solana.
Meanwhile, top traders seemed to be playing out the short Shiba Inu, long Dogecoin trade. These included the likes of Su Zhu, CEO of crypto trading firm Three Arrows Capital, who said on Twitter, “88e-6 $shib touched. rotatooor to .88 $doge now?.”
88e-6 $shib touched
rotatooor to .88 $doge now? pic.twitter.com/AqRd85rCSk
— Zhu Su
(@zhusu) October 28, 2021
GCR, an anonymous trader ranked among the biggest traders by volume and profits on crypto exchange FTX, cautioned about the trade playing out in a tweet on Tuesday.
i do not believe shib will be able to flip doge on any meaningful timeframe [could happen on a wick, or very short burst]
as the marketcaps converge, an obvious trade will unfold before you
— GCR (@GiganticRebirth) October 26, 2021
Today’s mean-reversion trade could likely be limited to an intraday market part or become part of a broader interplay between Shiba Inu and Dogecoin. You can bet traders are probably transfixed to their screens watching these meme tickers.
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