Gold is overheated, leverage is at a record high: Bitcoin is caught between a rock and a hard place
Markets are sending alarming signals that directly threaten risky assets, including Bitcoin (BTC). One leading strategist highlights the critical state of gold, while independent analysts record an all-time high in leverage on US exchanges. Both of these trends create a volatile mix for the cryptocurrency market.
Gold Loses Its Safe-Haven Status
In my observation, the January-February peak in gold around $5,500 per ounce may have been a "once-in-a-lifetime opportunity" to sell. After a correction of roughly 30%, the precious metal is consolidating near support at $4,000, but the overall picture appears overheated. 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 traditional safe-haven asset into a speculative instrument, reminiscent of the situation before the Great Recession.
Additional pressure comes from the rise in yields on 30-year US Treasury bonds to nearly 5.2% — a high not seen since 2007. In such conditions, non-yielding assets like gold and Bitcoin find themselves at a distinct disadvantage relative to equities.
Record Leverage: The US Market on a Knife's Edge
An even more troubling signal is the volume of leveraged speculation in US markets. Assets under management for US leveraged and inverse ETFs have reached a record $208 billion. Considering double and triple leverage, the real volume of positions exceeds $464 billion, with an increase of roughly $200 billion since the beginning of April. The lion's share ($320 billion) is in triple-leveraged funds, 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 US markets has never been this extreme.
Double Risk for Bitcoin
For Bitcoin, the situation is twofold. On one hand, if overheated markets with record leverage reverse downward, BTC, as a risky asset, will be caught in a wave of forced selling alongside equities. On the other hand, if confidence 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 view: We are at a bifurcation point. Record leverage and overheated gold are not just technical indicators but signs of extreme market euphoria. Bitcoin, being the most volatile and liquid asset, could become either the primary victim of a sell-off or the main beneficiary of a shift in sentiment. Investors should prepare for sharp moves in either direction.