Bitcoin’s sharp decline (nearly 50% from its all-time highs reached just a few months ago) has reignited debate over the cryptocurrency’s stability, but hedge fund veteran Gary Bode says the selloff is a feature of the asset’s inherent volatility rather than a sign of a broader crisis.
In a post on “Reductions of 80% to 90% are common,” he said. “Those who have been willing to endure the ever-temporary volatility have been well rewarded with incredible long-term returns.”
Much of the recent turbulence, he said, can be attributed to market reactions to the appointment of Kevin Warsh to succeed Jerome Powell as chairman of the Federal Reserve. Investors interpreted the move as a sign that the Federal Reserve could take a hawkish stance, raising interest rates and making zero-yield assets like bitcoin, gold and silver relatively less attractive. Margin calls on leveraged positions amplified the decline, triggering a cascade of forced sales.
Bode, however, questions the market’s interpretation. He pointed to Warsh’s public statements supporting lower rates and notes from President Trump suggesting Warsh promised a lower federal funds rate. Combined with Congress’s current multitrillion-dollar deficits, Bode argued, the Federal Reserve has limited ability to influence long-term Treasury yields, a key factor in corporate borrowing and mortgage rates. “I think the market got it wrong,” he said, emphasizing that perception, rather than fundamentals, drove much of the recent selling.
Other commonly cited explanations, he said, also don’t tell the whole story. One theory is that “whales” (early bitcoin holders who mined or bought coins when prices were near zero) are dumping their holdings. While Bode acknowledges that large portfolios have been active and some big sellers have emerged, he frames these moves as profit-taking rather than an indication of long-term weakness. “The technical skill of the early adopters and miners is something to be applauded,” he said. “That doesn’t mean its sales (full or partial) tell us much about the future of bitcoin.”
Bode also pointed to the ($MSTR) strategy as a potential source of near-term pressure. The company’s shares fell after Bitcoin fell below the prices at which Strategy bought many of its holdings, raising fears that Saylor could sell. Bode described this risk as real but limited, likening it to when Warren Buffett buys a big stake in a company: Investors like the support, but are worried about potential sales. He stressed that bitcoin itself would survive such events, although prices could temporarily drop.
Another factor is the rise of “paper” bitcoin, financial instruments such as exchange-traded funds (ETFs) and derivatives that track the price of the crypto asset without requiring ownership of the underlying currencies. While these instruments increase the effective supply available for trade, they do not alter bitcoin’s 21 million coin cap, which Bode says remains a crucial anchor for long-term value. He drew parallels with the silver market, where increased paper trading initially suppresses prices until physical demand pushes them up.
Some analysts have suggested that rising energy prices could hurt bitcoin mining and reduce the network’s hash rate, which could lower prices in the long term. Bode considers this theory to be exaggerated.
Historical data shows that past bitcoin price drops did not consistently result in hash rate drops, and when drops did occur, they lagged months behind the price drop.
He also pointed to emerging energy technologies, including small modular nuclear reactors and solar-powered AI data centers, that could provide low-cost power for mining in the future.
Bode also addressed criticism that bitcoin is not a “store of value.” While some argue that its volatility disqualifies it from playing this role, Bode points out that almost all assets carry risks, including fiat currencies backed by heavily indebted governments. “[…] Gold requires energy to protect, unless you’re comfortable leaving it on your front porch,” he said. “Paper Bitcoin may influence the price in the short term, but in the long term, 21 million coins will be issued, and if you want to own Bitcoin, that’s the real asset. Bitcoin is permissionless and does not require trust in a counterparty.”
Ultimately, Bode’s assessment frames the recent drop as a natural consequence of bitcoin’s design. Volatility is part of the game and those willing to endure it may ultimately be rewarded. For investors, the key takeaway is that price swings, no matter how dramatic, are not necessarily a sign of systemic risk.
