Gold overheating, leverage at record highs: bitcoin caught between a rock and a hard place
Markets are sending alarming signals. Gold, the traditional safe-haven asset, is showing signs of overheating, while leveraged trading volume in the US has soared to historic highs. This combination creates an extremely fragile environment for risky assets, including Bitcoin (BTC).
Both of these trends point to the same problem: markets are saturated with bullish bets, while safe-haven assets are losing their usual footing. In such a climate, even a minor shift in sentiment can trigger a chain reaction, and the consequences could be unpredictable.
Gold: From Safe Haven to Speculative Instrument
Analysis of market data suggests that gold may have passed its peak. After a correction of approximately 30% from its all-time high, the precious metal found support around $4,000 per ounce. However, the overall picture is far from healthy.
For the first time since 2007, gold's 180-day volatility is trading at a premium of roughly 2.3 times the volatility of the S&P 500 index. This has transformed the precious metal from a quiet haven into a speculative, high-risk asset. The last time such an anomaly occurred, it preceded the Great Recession and exposed abnormally low stock market volatility.
When gold reached its price peak of around $5,500 in February, it was at a forty-year high relative to its 60-month moving average and a basket of US Treasury bonds. At the same time, 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 since 2007—adds further pressure on non-yielding assets. In this configuration, gold risks being at a disadvantage compared to equities.
Record Leverage: A Powder Keg for the Market
The alarming backdrop is reinforced by data on leveraged speculation in US markets. Assets under management for US 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 approximately $200 billion.
The lion's share consists of 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 2022 bear market, the total exposure of such funds was only a fraction of current levels. The leverage embedded in markets has never been this extreme.
Both analyses lead to the same conclusion: markets are overloaded with bullish bets, and gold itself has turned 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 risky asset, could be caught in a wave of forced selling alongside equities. On the other hand, if faith in gold as a safe haven falters, some capital will sooner or later begin seeking a new refuge. And that is when Bitcoin could capture this demand.
My analytical assessment: At this point, the risks of a correction for BTC outweigh the potential benefits. Record leverage is a powder keg, and any spark—whether from macroeconomic data or geopolitics—could trigger an explosion. Investors should exercise maximum caution and reconsider their risk management strategies.