Bitcoin’s recent selloff reflects the asset’s inherent volatility and a market misinterpretation of Federal Reserve policy rather than any underlying structural weakness, according to hedge fund veteran Gary Bode.
The cryptocurrency has fallen nearly 50% from all-time highs reached earlier this year, reigniting questions about its resilience. Bode argues the move is consistent with bitcoin’s historical trading patterns and does not amount to a broader crisis.
In a post on X, Bode described the decline as “unpleasant and jarring,” but said such moves are far from rare. “Eighty to ninety percent drawdowns are common,” he wrote, adding that investors who have endured bitcoin’s volatility have historically been rewarded over the long term.
Bode attributed much of the recent turbulence to investor reaction following the nomination of Kevin Warsh to succeed Jerome Powell as Federal Reserve chair. Markets interpreted the move as signaling a more hawkish policy stance, weighing on non-yielding assets such as bitcoin, gold, and silver. That shift in expectations triggered margin calls on leveraged positions, amplifying the selloff.
He disputes that interpretation, pointing to Warsh’s prior public support for lower interest rates and comments from President Trump suggesting Warsh had committed to a lower federal funds rate. Bode also argued that persistent, multi-trillion-dollar fiscal deficits limit the Fed’s ability to control longer-term Treasury yields, which are more influential for corporate borrowing and mortgage rates. “I think the market got this one wrong,” he said, adding that sentiment rather than fundamentals drove the decline.
Other explanations commonly cited by the market, Bode said, are also incomplete. One theory suggests early bitcoin holders, or “whales,” are exiting positions. While Bode acknowledged that large wallets have been active, he characterized the behavior as routine profit-taking rather than a signal of long-term weakness. Sales by early adopters, he said, offer little insight into bitcoin’s future trajectory.
Bode also highlighted Strategy (MSTR) as a potential source of near-term pressure. The company’s shares slid as bitcoin fell below the prices at which it accumulated much of its holdings, raising speculation that Michael Saylor could be forced to sell. Bode described the risk as real but limited, comparing it to investor unease when a prominent buyer accumulates a large stake. Any such selling, he said, would likely be temporary and would not undermine bitcoin’s fundamentals.
Another factor weighing on sentiment is the rise of “paper bitcoin,” including ETFs and derivatives that track the asset’s price without transferring ownership of the underlying coins. While these products increase the amount of bitcoin exposure available for trading, Bode said they do not change bitcoin’s fixed supply cap of 21 million coins. He likened the dynamic to the silver market, where expanded paper trading can temporarily suppress prices until physical demand asserts itself.
Concerns have also surfaced that higher energy costs could harm bitcoin mining and reduce the network’s hash rate. Bode dismissed those fears as overstated, noting that historical data shows hash rate declines, when they occur, tend to follow price drops rather than precede them. He also pointed to emerging energy technologies, including small modular nuclear reactors and solar-powered data centers, as potential sources of cheaper power for miners.
Addressing criticism that bitcoin fails as a store of value due to its volatility, Bode argued that all assets carry risk, including fiat currencies issued by heavily indebted governments. While paper instruments can influence short-term prices, he said bitcoin’s long-term value remains anchored by its fixed supply and permissionless design.
Bode ultimately characterized the recent downturn as a natural consequence of bitcoin’s structure. Volatility, he said, is part of the asset’s appeal and its challenge, and sharp price swings should not be mistaken for signs of systemic instability.
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