Gold at its limit, leverage at its maximum: a double alarm signal for bitcoin
Financial markets are sending several alarming signals that directly affect the fate of bitcoin. On the one hand, gold, traditionally considered a safe-haven asset, looks overheated and increasingly resembles a speculative instrument. On the other hand, the volume of leveraged trading in US markets has reached record levels, indicating an extreme obsession among investors with betting on growth.
Gold: From Safe Haven to Risk Asset
An analysis of the precious metal's dynamics shows that its 180-day volatility is trading at a premium of almost 2.3 times the volatility of the S&P 500 index for the first time since 2007. This has transformed gold from a conservative safe haven into a high-risk asset. In February, when the price peaked at around $5,500 per ounce, the metal was at a 40-year high relative to its 60-month moving average and a basket of US government bonds. Meanwhile, most central banks have already shifted to raising rates, and the yield on 30-year US bonds has jumped to nearly 5.2% — a high not seen since 2007. In such an environment, gold finds itself at a disadvantage compared to stocks, especially considering it generates no income.
Now, after a correction of approximately 30%, the precious metal "would normally bounce" from the round support level around $4,000 per ounce. However, the overall picture remains overheated. The last time a similar situation occurred, it preceded the Great Recession and exposed the stock market's excessively low volatility.
Leverage: Record at $464 Billion
The second alarming signal is the rapid growth of leveraged speculation in US markets. Assets under management in leveraged and inverse ETFs have reached a record $208 billion. Accounting for double and triple leverage, the real volume of positions exceeds $464 billion. Since the beginning of April, it has grown by approximately $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 bear market of 2022, the total exposure of such funds was only a fraction of current levels. The leverage embedded in markets has never been this extreme.
What Does This Mean for Bitcoin?
Both of these signals point in the same direction: markets are overloaded with bets on growth, and safe-haven assets are losing their footing. In such an environment, any shift in sentiment could trigger a chain reaction of forced selling. For bitcoin, this signal is twofold. On the one hand, if overheated markets with record leverage turn downward, BTC, as a risk asset, could be caught in 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 could capture this demand.
Expert Opinion: I lean toward the view that the current situation is a classic "bull trap." Extreme leverage and gold overheating create ideal conditions for a sharp sell-off in risk assets. Bitcoin, despite its potential as a digital safe haven, remains too correlated with traditional markets to avoid a possible crash. Investors should be extremely cautious and prepare for high volatility.