Gary Bode, a seasoned hedge fund manager, states that Bitcoin’s 50% drop is not a crisis.

The sell-off illustrates bitcoin’s inherent volatility and market misinterpretations of Fed policy, not structural vulnerabilities, contended Bode.

(Getty Images/Stefano Madrigali)

What to know:

• Bitcoin’s nearly 50% decline from its recent peaks aligns with its historical pattern of sharp yet typically temporary downturns, rather than signaling a systemic crisis, asserts hedge fund veteran Gary Bode.
• Bode believes that the markets are misinterpreting the nomination of Kevin Warsh as an indication of tighter Federal Reserve policy; he states that this perception, along with margin calls and profit-taking by significant holders, largely drove the sell-off.
• He argues that elements such as selling by large holders, pressure on Strategy, and the increase of “paper” bitcoin may impact prices in the near term, yet they do not change bitcoin’s limited supply or its long-term investment rationale as a volatile store of value.

Bitcoin’s significant drop — almost 50% from its all-time highs achieved just months ago — has sparked renewed discussion regarding the cryptocurrency’s stability. However, hedge fund veteran Gary Bode suggests the sell-off is a byproduct of the asset’s intrinsic volatility rather than an indication of a larger crisis.

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In a post on X, Bode remarked that although the recent price drop is “unpleasant and jarring,” it is not atypical in bitcoin’s history. “80% – 90% drawdowns are common,” he mentioned. “Those who have been able to endure the often-temporary volatility have been rewarded with remarkable long-term gains.”

Much of the recent volatility, he indicated, can be linked to market responses regarding the nomination of Kevin Warsh to replace Jerome Powell as Federal Reserve chair. Investors interpreted this appointment as a hint that the Fed might take a hawkish approach, raising interest rates and rendering zero-yield assets such as bitcoin, gold, and silver less appealing. Margin calls on leveraged positions intensified the decline, resulting in a wave of forced selling.

Bode, however, contests the market’s understanding. He referred to Warsh’s public remarks advocating for lower rates and comments from President Trump suggesting that Warsh assured a reduction in the fed funds rate. Coupled with Congress’ ongoing multi-trillion-dollar deficits, Bode argued, the Fed’s capacity to influence longer-term Treasury yields — a crucial element for corporate borrowing and mortgage rates — is limited. “I think the market misread this one,” he stated, underscoring that perception, rather than fundamentals, was responsible for much of the recent selling.

Other frequently mentioned explanations, he asserted, also fail to capture the complete picture. One theory posits that “whales” — early bitcoin adopters who mined or acquired coins when prices were near zero — are liquidating their holdings. While Bode acknowledges that large wallets have been active and some significant sellers have emerged, he characterizes these actions as profit-taking rather than evidence of long-term fragility. “The technical acumen of the early adopters and miners is commendable,” he said. “That doesn’t imply that their sales (complete or partial) provide significant insight into bitcoin’s future.”

Bode also identified Strategy ($MSTR) as a potential factor for short-term pressure. The company’s stock dropped after bitcoin fell below the prices at which Strategy acquired many of its holdings, raising concerns that Saylor might sell. Bode described this risk as genuine but limited, likening it to when Warren Buffett invests heavily in a company: investors appreciate the support but are anxious about future sales. He emphasized that bitcoin itself would endure such occurrences, although prices may experience temporary declines.

Another element is the emergence of “paper” bitcoin — financial instruments like exchange-traded funds (ETFs) and derivatives that track the price of the crypto asset without necessitating ownership of the actual coins. While these instruments increase the effective supply available for trading, they do not affect bitcoin’s hard cap of 21 million coins, which Bode stated remains a vital anchor for long-term value. He compared it to the silver market, where increased paper trading initially suppresses prices until physical demand drives them higher.

Some analysts have proposed that rising energy costs could negatively impact bitcoin mining and decrease the network’s hash rate, potentially leading to lower long-term prices. Bode considers this theory exaggerated.

Historical data indicates that past bitcoin price declines did not consistently result in hash rate reductions, and when such reductions did occur, they often lagged months behind the price drop.

He also highlighted emerging energy technologies — including small modular nuclear reactors and solar-powered AI data centers — that may offer low-cost energy for mining in the future.

Bode also responded to criticisms that bitcoin is not a “store of value.” Although some contend that its volatility disqualifies it from this role, Bode emphasizes that nearly every asset carries risk — including fiat currencies backed by heavily indebted governments. “[…] Gold does require energy to secure unless you’re comfortable leaving it on your front porch,” he remarked. “Paper Bitcoin can affect short-term pricing, but in the long run, there are 21 million coins that will be issued, and if you wish to own Bitcoin, that’s the true asset. Bitcoin is permissionless and necessitates no reliance on a counterparty.”

Ultimately, Bode’s perspective positions the recent decline as an expected outcome of bitcoin’s design. Volatility is part of the equation, and those prepared to withstand it may ultimately reap rewards. For investors, the essential takeaway is that price fluctuations, regardless of how extreme, do not inherently signify systemic risk.