Gold is overheated, leverage in the US hits records: what this means for Bitcoin
Markets are sending alarming signals that directly affect bitcoin as well. Two independent observations indicate that the financial system is overloaded with bullish bets, while safe-haven assets are losing their traditional role. This configuration creates an extremely fragile environment for all risk assets, including the leading cryptocurrency.
Gold as a speculative asset: an unusual anomaly
Analysis of gold's behavior shows that the precious metal may have already passed its peak. After a correction of approximately 30% from its all-time high of around $5,500 per ounce, a bounce from the round support level of $4,000 would be logical. However, the overall picture points to overheating.
A key indicator is gold's 180-day volatility. For the first time since 2007, it is trading at a premium of roughly 2.3 times the volatility of the S&P 500 index. This has transformed gold from a classic safe haven into a speculative, risk-on asset. The last time such a situation occurred, it preceded the Great Recession and exposed abnormally low volatility in the stock market. Additionally, the rise in 30-year U.S. Treasury bond yields to nearly 5.2% — the highest since 2007 — creates powerful pressure on non-yielding assets such as gold and bitcoin.
Record leverage: a ticking time bomb
An even more alarming signal comes from the U.S. market. The total assets under management of leveraged and inverse U.S. ETFs have reached a record $208 billion. Considering double and triple leverage, the real position size exceeds $460 billion. The increase since the beginning of April amounts to about $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 just a fraction of current levels.
Both observations lead to one conclusion: markets are overloaded with bullish bets, and gold, the traditional safe haven, has itself become a tool for speculation. 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 equities. On the other hand, if faith in gold as a hedge falters, some capital will sooner or later begin seeking a new safe haven. And that is when bitcoin could capture this demand.
My view: the current situation resembles a taut string. Record leverage and overheated gold are classic signs of a late-cycle stage. Bitcoin could find itself at the epicenter of the storm, but it is precisely in such moments that new trends are born. Investors should be prepared for high volatility.