Overheated gold and record leverage: Bitcoin at a crossroads between correction and new capital inflow
Markets are sending alarming signals that directly threaten risk assets, including Bitcoin (BTC). An analysis of the current situation reveals two key factors: gold, a traditional safe-haven asset, is showing signs of severe overheating, and the volume of margin trading in US markets has reached an all-time high. This combination creates an extremely fragile environment where any shift in sentiment could trigger a cascade of liquidations.
Gold Has Lost Its 'Safe Haven' Status
My data analysis shows that gold has transformed from a defensive asset into a speculative instrument. For the first time since 2007, the 180-day volatility of gold is trading at a 2.3x premium to the volatility of the S&P 500 index. Previously, such a divergence preceded the Great Recession.
After peaking around $5,500 per ounce in February, the price has corrected by approximately 30%. However, a key indicator — the ratio of the current price to the 60-month moving average — stands at 1.61, the highest level in decades. The rise in yields on 30-year US Treasury bonds to nearly 5.2% in May (a high since 2007) creates additional pressure on non-yielding assets. In such a climate, gold risks being in a losing position relative to stocks.
US Market at Record Leverage Levels
An additional source of instability is the unprecedented level of margin trading in the US. The total assets under management of US leveraged and inverse ETFs have reached $208 billion. Considering double and triple leverage, the real volume of positions exceeds $460 billion.
The structure of this market is particularly concerning: triple-leveraged funds account for $320 billion, and double-leveraged funds for $171 billion. Meanwhile, inverse funds that profit from declines amount to only $27 billion. This imbalance creates an extremely one-sided position, vulnerable to any shock. For comparison, during the 2022 bear market, the total exposure was only a fraction of current levels.
A Dual Signal for Bitcoin
For Bitcoin, the situation is twofold. On one hand, if the overheated market with record leverage turns downward, BTC, 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 inevitably begin seeking a new refuge. And that is when Bitcoin could capture this demand.
My opinion: The market is teetering on the edge. Current leverage levels in the US are a ticking time bomb, and BTC will likely not escape short-term volatility. However, it is precisely in moments of crisis of confidence in traditional safe havens that Bitcoin can demonstrate its unique value as a decentralized asset uncorrelated with markets.