Gold on the verge of overheating, while leverage in the US hits records: what this means for bitcoin
Financial markets are sending several alarming signals that directly affect the cryptocurrency sector as well. Gold, traditionally considered a safe-haven asset, is showing signs of overheating, while leveraged trading volume in the US has reached historic highs. In such an environment, Bitcoin could find itself in a high-risk zone.
Gold Loses Its 'Safe Haven' Status
Analysis of gold's current dynamics points to its transformation from a safe-haven asset into a speculative one. For the first time since 2007, gold's 180-day volatility is approximately 2.3 times higher than that of the S&P 500 index. The last time such a shift was observed was on the eve of the Great Recession, indicating critically low stock market volatility and unhealthy hype around the precious metal.
After reaching a peak of around $5,500 per ounce in February, the price of gold corrected by about 30%. However, even after this pullback, the metal is at a 40-year high relative to its 60-month moving average. Additional pressure comes from the yield on 30-year US Treasury bonds, which rose to nearly 5.2% in May — the highest since 2007. In such conditions, gold, which generates no interest income, finds itself at a disadvantage compared to stocks and bonds.
Record Leverage: $460 Billion in Play
The second alarming factor is the unprecedented volume of leveraged speculation in US markets. Total assets under management for leveraged and inverse ETFs have reached $208 billion. However, considering double and triple leverage, the real volume of positions exceeds $460 billion. Moreover, since the beginning of April, this figure has grown by about $200 billion. The lion's share consists of triple-leveraged funds ($320 billion), followed by double-leveraged funds ($171 billion). For comparison, inverse funds, which profit from declines, account for only $27 billion. Such one-sided market positioning is an extremely dangerous signal, not seen even during the bear market of 2022.
What Does This Mean for Bitcoin?
For Bitcoin, the situation is twofold. On one hand, if overheated markets with record leverage begin to reverse 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 asset falters, some capital will sooner or later start seeking a new refuge. And that is when Bitcoin could capture this demand, strengthening its status as 'digital gold.'
My view: Markets are in an extremely fragile equilibrium. Record leverage is a ticking time bomb. Any external shock could trigger a chain reaction of liquidations. For Bitcoin, this means increased volatility in the coming weeks. Investors should be prepared for sharp moves in either direction.