Gold on the verge of overheating, while leverage in the US hits records: Bitcoin in a turbulence zone
Financial markets are sending alarming signals. Gold, the traditional safe-haven asset, is showing signs of overheating, while leveraged trading volumes in the US have reached historic highs. This combination creates an extremely fragile environment for risk assets, including Bitcoin (BTC).
Two independent observations point to the same problem: markets are oversaturated with bullish bets, and the usual "safe havens" are losing their stability. Any sudden shift in sentiment could trigger a chain reaction.
Gold: From Safe Haven to Speculative Instrument
Analysis of gold's dynamics suggests that a historic peak for selling may have formed in January-February. After a correction of roughly 30%, the precious metal found support around $4,000 per ounce, but the overall picture is far from healthy.
A key indicator—gold's 180-day volatility—is trading at a premium of about 2.3 times the volatility of the S&P 500 index for the first time since 2007. This has transformed gold from a safe-haven asset into a speculative one. The last time such a situation occurred, it preceded the Great Recession and exposed abnormally low stock market volatility.
When gold peaked around $5,500 in February, it was at a forty-year high relative to its 60-month moving average. The rise in yields on 30-year US Treasury bonds to nearly 5.2% in May (a high since 2007) adds further pressure on assets that do not generate interest income. In this configuration, gold risks being at a disadvantage compared to stocks.
Record Leverage: Market on the Brink
The alarming backdrop is compounded by data on leveraged speculation in US markets. Assets under management for US leveraged and inverse ETFs have reached a record $208 billion. With double and triple leverage factored in, 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 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. The leverage embedded in US markets has never been this extreme.
A Dual Signal for Bitcoin
For Bitcoin, the situation is twofold. On one hand, if overheated markets with record leverage reverse 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, capital will begin seeking a new refuge. And then Bitcoin could capture this demand, offering an alternative with its own set of fundamental characteristics.
My expert opinion: Markets have gone too far in a consensus bullish sentiment. Historically, such imbalances end with a sharp correction. For Bitcoin, this means increased volatility in the coming weeks, but with prudent risk management—also a potential opportunity to enter at attractive levels.