Gold is overheated, leverage in the US is at a record high — Bitcoin at a crossroads
Financial markets are sending alarming signals, and as an analyst, I see this as a direct threat to cryptocurrencies. Two independent observations point to extreme tension: gold, in my assessment, looks overheated, and the volume of leveraged trading in the US has reached an all-time high. In such an environment, any shift in sentiment could trigger a chain reaction, with Bitcoin (BTC) at the epicenter.
Gold: From Safe Haven to Speculative Bubble
I am closely monitoring the dynamics of the precious metal. After peaking around $5,500 per ounce in February and subsequently correcting by roughly 30%, gold seemed to find support near $4,000. However, the overall picture raises serious concerns for me. For the first time since 2007, gold's 180-day volatility is trading at a premium of nearly 2.3 times the volatility of the S&P 500 index. This has transformed the classic safe-haven asset into a speculative instrument. The last time such a situation occurred, it preceded the Great Recession and exposed abnormally low stock market volatility.
Additional pressure comes from the rise in yields on 30-year US Treasury bonds to nearly 5.2%—a high not seen since 2007. For a non-yielding asset like gold, this is an extremely unfavorable backdrop. I believe gold risks being at a disadvantage relative to stocks.
US Market: Record Leverage as a Time Bomb
I have discovered even more alarming data in the US market. The assets under management of US leveraged and inverse ETFs have reached a record $208 billion. Considering double and triple leverage, the real position size 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 just a fraction of current levels. The leverage embedded in the markets, in my opinion, has never been this extreme.
Dual Signal for Bitcoin
For Bitcoin, this creates a dual picture. 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, some capital will sooner or later begin to seek a new refuge. And that is when Bitcoin could capture this demand.
My analysis shows: the coming weeks will be critical. The market is caught between the fear of liquidations and the potential for a narrative shift. Investors should prepare for heightened volatility.