Gold is overheated, leverage in the US hits records: what this means for bitcoin
Financial markets are sending several alarming signals that directly impact the cryptocurrency sector. On one hand, gold appears overheated, and on the other, margin trading volumes in U.S. markets have reached historic highs. Together, these factors create an extremely fragile environment for all risk assets, including Bitcoin (BTC).
Both of these observations point to the same problem: markets are saturated with bullish bets, and safe-haven assets are losing their traditional function. In such a situation, any shift in sentiment could trigger a chain reaction that also affects cryptocurrencies.
Gold: From Safe Haven to Speculative Asset
Analysis of gold's current dynamics shows that the precious metal may have already passed its peak. After a correction of roughly 30% from its highs, a bounce from the round support level around $4,000 per ounce would be logical. However, the overall picture looks overheated.
Notably, gold's 180-day volatility is trading at a premium of approximately 2.3 times the volatility of the S&P 500 index for the first time since 2007. This has transformed the traditional safe-haven asset into a speculative instrument. The last time such a situation occurred, it preceded the Great Recession and exposed the abnormally low volatility of the stock market.
When gold reached its price peak around $5,500 in February, it was at a forty-year high relative to its 60-month moving average and a basket of U.S. Treasury bonds. Meanwhile, most central banks had already shifted to raising interest rates. The rise in yields on 30-year U.S. Treasury bonds to nearly 5.2% in May—a high not seen since 2007—creates serious obstacles for non-yielding assets like gold. In this configuration, gold risks being in a losing position relative to stocks.
Record Leverage: A Ticking Time Bomb
The alarming backdrop is compounded by data on leveraged speculation in U.S. markets. Assets under management for U.S. leveraged and inverse ETFs have reached a record $208 billion. Considering double and triple leverage, the real volume of positions exceeds $460 billion. Since the beginning of April, this figure has grown by roughly $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 U.S. markets has never been this extreme.
For Bitcoin, this signal is twofold. On one hand, if overheated markets with record leverage turn 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 situation resembles a taut string. Record leverage in traditional markets and gold's loss of its "safe haven" status create conditions for a sharp capital shift. Bitcoin, at the crossroads of these trends, could both suffer from short-term panic and benefit in the medium term if investors begin to rethink their hedging strategies. The key risk is a synchronized collapse of all risky assets, which could be triggered even by a minor external shock.