Gold is overheated, leverage in the US hits records: what this means for bitcoin
Financial markets are sending several alarming signals that directly affect the cryptocurrency sector as well. Monitoring the situation shows that gold, traditionally considered a safe-haven asset, appears overheated, and the volume of margin trading on US exchanges has reached historic highs. This creates an extremely fragile environment for all risk assets, including Bitcoin (BTC).
An analysis of the precious metal's dynamics indicates that the January and February rally may have been the last opportunity for the sale of the century. After a correction of approximately 30% from peak levels, gold could find support around $4,000 per ounce. However, the overall picture remains troubling. 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 precious metal from a safe haven into a speculative instrument. The last time a similar situation occurred was before the Great Recession, exposing abnormally low stock market volatility.
When gold reached its price peak of around $5,500 in February, it was at a 40-year high relative to its 60-month moving average and a basket of US Treasury bonds. Meanwhile, 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—creates a significant obstacle for non-yielding assets such as gold and Bitcoin.
Record Leverage: A Ticking Time Bomb
An even more alarming signal comes from the US leverage market. Assets under management of US ETFs using borrowed funds and inverse funds 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 so extreme.
For Bitcoin, this signal is twofold. On one hand, if overheated markets with record leverage reverse downward, BTC as a risk asset could come under 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 seeking a new refuge, and then Bitcoin could capture that demand.
Expert Commentary: The current situation reminds me of a drawn bowstring. Record leverage combined with overheating of safe-haven assets is a classic scenario for a sharp and painful reversal. For Bitcoin, this means that in the short term, it is extremely vulnerable to a potential correction in traditional markets. However, in the medium term, if a flight from gold begins, BTC could become one of the main beneficiaries of this process, strengthening its status as digital gold.