Overheated gold and record leverage: Bitcoin on the verge of a perfect storm
Financial markets are sending alarming signals that I, as an analyst, cannot ignore. Two key observations point to the formation of an extremely fragile environment for all risk assets, including Bitcoin (BTC). We are talking about the clear overheating of gold and an unprecedented level of leverage in US markets.
Gold, traditionally considered a safe-haven asset, has been behaving abnormally in recent months. For the first time since 2007, its 180-day volatility is trading at a premium of nearly 2.3 times the volatility of the S&P 500 index. This transforms the precious metal from a quiet haven into a highly speculative instrument. The last time such dynamics occurred, it preceded the Great Recession and exposed the abnormally low volatility of the stock market.
After the February peak around $5,500 per ounce, gold corrected by approximately 30%. However, the overall picture remains overheated: the price is at a 40-year high relative to its 60-month moving average. The rise in the yield of 30-year US Treasury bonds to nearly 5.2% in May (a high since 2007) creates a strong headwind for non-yielding assets, putting gold in a deliberately losing position compared to stocks.
Record Leverage: A Ticking Time Bomb
An even more alarming signal comes from the US exchange-traded fund (ETF) market. The volume of assets under management in leveraged and inverse funds has reached an all-time high of $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 nearly $200 billion. Funds with triple leverage dominate ($320 billion), followed by funds with double leverage ($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 only a fraction of current levels. Such extreme leverage has never been seen in US markets before.
My conclusion as an analyst: the combination of overheated gold, which has lost its safe-haven properties, and record leverage in the US creates an explosive mixture. For Bitcoin, the signal is twofold. If markets turn, BTC, as a high-risk asset, will be caught in a wave of forced selling along with stocks. However, if faith in gold as a safe haven falters, capital will begin to seek a new refuge. And then Bitcoin, with its "digital gold" narrative, could capture this demand. In the short term, I see more risks, but the medium-term scenario for BTC remains interesting.