Gold is overheated, leverage at maximum: double risk for bitcoin
Financial markets are sending several alarming signals that directly threaten the positions of risk assets, including Bitcoin (BTC). An analysis of the current environment points to overheating in gold and a record level of speculative leverage in US markets. Both of these factors create an extremely fragile and explosive environment for cryptocurrencies.
Gold: From Safe Haven to Speculative Asset
The precious metal, traditionally considered a safe-haven asset, is exhibiting anomalous behavior. 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 gold from a quiet harbor into a high-risk speculative instrument. A similar situation was observed before the Great Recession, when markets were skewed and the stock market displayed unnaturally low volatility.
After reaching a price peak near $5,500 per ounce in February, gold corrected by approximately 30%. The current bounce from the round support level of $4,000 appears logical, but the overall trend remains overheated. The rise in yields on 30-year US Treasury bonds to nearly 5.2% (the highest since 2007) creates a strong headwind for non-yielding assets. In such an environment, gold risks being in a losing position relative to stocks, which could trigger further capital outflows.
Record Leverage: $460 Billion at Stake
An even more alarming signal is the unprecedented level of leveraged speculation in US markets. Assets under management in leveraged and inverse ETFs have reached an all-time high of $208 billion. Accounting for double and triple leverage, 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 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 bear market of 2022, the total exposure of such funds was only a fraction of current levels. The leverage embedded in markets has never been this extreme.
What Does This Mean for Bitcoin?
Both signals lead to one conclusion: markets are overloaded with bullish bets, and safe-haven assets are losing their footing. For Bitcoin, the situation is twofold. On one hand, if overheated markets with record leverage reverse downward, BTC, as a risk asset, will 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 that is when Bitcoin could capture this demand.
My expert opinion: The current situation resembles the calm before the storm. Record leverage is a powder keg, and overheated gold is a lost anchor of stability. For Bitcoin, this means increased volatility and a serious risk of a sharp correction in the short term, before it can establish itself as a new digital safe haven. Investors should prepare for turbulence.