Overheated gold and record leverage in the US: Bitcoin under crossfire
Financial markets are sending alarming signals that directly threaten Bitcoin's prospects as well. At the moment, we are observing two critical indicators simultaneously: gold overheating to levels unseen since 2007, and an explosive growth in leverage on U.S. markets. The combination of these factors creates an extremely fragile environment for all risk assets, including the leading cryptocurrency.
Gold Loses Its Safe-Haven Status
An analysis of gold's dynamics shows that the precious metal has ceased to be a classic safe-haven asset. For the first time since 2007, its 180-day volatility is trading at a 2.3x premium to the volatility of the S&P 500 index. This turns gold into a speculative instrument, which is highly atypical. The last time such an anomaly occurred, it preceded the Great Recession.
In February of this year, when gold reached an all-time high of around $5,500 per ounce, it was at a 40-year high relative to its 60-month moving average. Now, after a correction of approximately 30%, a bounce from the round support level of $4,000 seems logical, but the overall picture remains overheated. The rise in 30-year U.S. Treasury yields to nearly 5.2% in May puts significant pressure on non-yielding assets, placing gold at a disadvantage relative to stocks.
Record Leverage: A Market on a Powder Keg
Alongside the overheating of gold, we are witnessing an unprecedented level of leveraged speculation in the U.S. Assets under management of leveraged and inverse U.S. ETFs have reached a record $208 billion. Considering double and triple leverage, the real volume of positions exceeds $460 billion. Moreover, since the beginning of April, this figure has grown by approximately $200 billion.
Particularly concerning is the extreme one-sidedness of positioning: inverse funds, which profit from market 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 the markets has never been this extreme.
A Double Blow to Bitcoin
For Bitcoin, this signal is dual but extremely dangerous. On one hand, if overheated markets with record leverage reverse downward, Bitcoin, 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, capital will sooner or later begin to seek a new refuge, and that is when Bitcoin could capture this demand.
My view: As long as markets are fixated on bullish bets and safe-haven assets lose their function, Bitcoin remains a hostage to macroeconomic turbulence. However, it is precisely now, in moments of maximum uncertainty, that the foundations for the next big rally are laid. Investors should prepare for heightened volatility and closely monitor liquidity levels.