Gold at its peak, leverage at a record: a double warning signal for Bitcoin
Financial markets are sending several alarming signals that directly affect the cryptocurrency sector as well. On one hand, we are witnessing a clear overheating in the gold market — a traditional safe-haven asset. On the other hand, leveraged trading volume in the US has reached historic highs. This combination creates an extremely fragile environment for all risk assets, including Bitcoin (BTC).
An analysis of the current situation shows that markets are heavily overloaded with bullish bets, while safe-haven instruments are losing their usual support. In this configuration, any shift in sentiment could trigger a chain reaction, the consequences of which could be quite painful.
Gold: From Safe Haven to Speculative Instrument
January and February of this year were likely a unique opportunity to lock in profits on gold. After a correction of approximately 30% from the all-time high of around $5,500 per ounce, the precious metal could have bounced off the round support near $4,000. However, the overall picture indicates that gold is overheated.
A key indicator — gold's 180-day volatility — is trading at a premium of roughly 2.3 times the volatility of the S&P 500 index for the first time since 2007. This shift has transformed the precious metal from a quiet haven into a highly speculative asset. The last time such an anomaly occurred, it preceded the Great Recession and exposed the abnormally low volatility of the stock market.
When the price of gold peaked in February, it was at a 40-year high relative to its 60-month moving average and a basket of US government bonds. Meanwhile, most central banks had already shifted to a rate-hiking cycle. The rise in yields on 30-year US government bonds to nearly 5.2% in May — a high since 2007 — creates a serious obstacle for non-yielding assets and puts gold at a distinct disadvantage compared to stocks.
Record Leverage: A Market on Fragile Ground
The alarming backdrop is compounded by data on leveraged speculation in US markets. Assets under management for US leveraged and inverse ETFs have reached a record $208 billion. However, accounting for double and triple leverage, the real volume of positions exceeds $460 billion. Since the beginning of April, this figure has grown by roughly $200 billion. The lion's share comes from triple-leveraged funds ($320 billion), followed by double-leveraged funds ($171 billion).
Positioning has become extremely one-sided: inverse funds, which profit from declines, account for only $27 billion. For comparison, during the 2022 bear market, the total exposure of such funds was just a fraction of current levels. The leverage embedded in US markets has never been this extreme.
Cryptalist Analytical Conclusion: For Bitcoin, this signal is twofold. On one hand, if overheated markets with record leverage turn downward, BTC, as a risk asset, will come under a wave of forced selling alongside stocks. On the other hand, if faith in gold as a safe haven falters, some capital will sooner or later begin to seek a new refuge. And that is when Bitcoin, with its "digital gold" narrative, could capture this demand. However, in the short term, the combination of overheated gold and excessive leverage creates a more bearish scenario for BTC.