Gold is overheated, leverage is off the charts: what this means for bitcoin
Markets are sending several warning signals at once. Gold, traditionally considered a safe-haven asset, appears overheated, while leveraged trading volume in the US has hit an all-time high. In this configuration, any shift in sentiment could trigger a chain reaction that will also affect Bitcoin (BTC).
An analysis of the current situation shows that safe-haven assets are losing their footing, while speculative positions are becoming increasingly one-sided. This creates an extremely fragile environment for all risk assets, including cryptocurrencies.
Gold: From Safe Haven to Speculation
Observations of the precious metals market indicate that the January-February peak in gold may have been a once-in-a-lifetime selling opportunity. After a correction of roughly 30% from its highs, the metal would be "normal to bounce" from the round support level around $4,000 per ounce. However, the overall picture remains overheated.
A key indicator—gold's 180-day volatility—is trading at a premium of about 2.3 times the volatility of the S&P 500 index for the first time since 2007. This has transformed the precious metal from a quiet haven into a full-fledged speculative instrument. The last time such an imbalance occurred, it preceded the Great Recession and exposed the abnormally low volatility of the stock market.
When gold reached its price peak near $5,500 in February, it was at a forty-year high relative to its 60-month moving average and a basket of US government bonds. Meanwhile, most central banks had already shifted to raising interest rates. The rise in 30-year US Treasury yields to nearly 5.2% in May—a high not seen since 2007—creates a serious obstacle for non-yielding assets. In this configuration, gold risks being at a disadvantage compared to stocks.
Record Leverage: $460 Billion at Play
The concerning backdrop is compounded by data on leveraged speculation in US markets. Assets under management for 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 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 market declines, account for only $27 billion. For comparison, during the bear market of 2022, the total exposure of such funds was just a fraction of current levels. The leverage embedded in US markets has never been this extreme.
A Dual Signal for Bitcoin
Both analyses lead to one conclusion: markets are overloaded with bets on the upside, and gold itself has transformed from a traditional safe haven into a speculative asset. For Bitcoin, the signal is twofold.
On one hand, if overheated markets with record leverage reverse downward, Bitcoin, 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: The current market configuration resembles a taut string. Record leverage in the US and gold's overheating are not just isolated phenomena but symptoms of the same problem: excessive confidence among market participants. Bitcoin stands at a crossroads: it could either suffer from a broad correction or benefit from capital flows out of traditional safe-haven assets. The key factor will be the speed and depth of a potential reversal in stock markets.