Bitcoin has experienced a notable drop, nearly 50% from its all-time highs reached a few months ago, sparking renewed discussions about the stability of the cryptocurrency. Veteran hedge fund manager Gary Bode asserts that this selloff reflects the inherent volatility of bitcoin rather than a sign of a broader financial crisis. In a recent post on social media platform X, Bode characterized the price decline as “unpleasant and jarring,” but emphasized that such fluctuations are not uncommon in bitcoin’s history, noting that “80% – 90% drawdowns are common.” He argued that those who can weather this temporary volatility often reap significant long-term rewards.
According to Bode, much of the recent market turbulence can be attributed to reactions surrounding the nomination of Kevin Warsh to take over as Federal Reserve chair from Jerome Powell. Investors perceived this appointment as a signal that the Fed might adopt a more hawkish stance in monetary policy, potentially leading to interest rate hikes. Such changes could render zero-yield assets like bitcoin, gold, and silver less appealing. Additionally, the presence of margin calls on leveraged positions intensified the selloff, leading to a wave of forced selling across the market.
However, Bode contests the market’s interpretation of Warsh’s appointment. He notes that Warsh has publicly supported lower interest rates and highlights comments from former President Trump indicating that Warsh committed to maintaining a lower fed funds rate. Coupled with Congress’s ongoing multi-trillion-dollar deficits, Bode contends that the Federal Reserve has limited capacity to influence long-term Treasury yields, which are vital for corporate borrowing and mortgage rates. “I think the market got this one wrong,” he stated, suggesting that market perceptions, rather than solid fundamentals, largely drove the recent declines.
Bode addressed other theories explaining the selloff, including the notion that “whales”—early bitcoin holders who mined or acquired coins when their values were negligible—are selling off their holdings. While acknowledging increased activity among large wallets, he views these transactions as profit-taking rather than evidence of long-term market weakness. “The technical skill of early adopters and miners is something to be applauded,” he remarked, asserting that their selling actions do not necessarily reflect on bitcoin’s future.
He also pointed to the company Strategy ($MSTR) as a potential short-term influence on bitcoin prices. After bitcoin dipped below the levels at which Strategy acquired many of its holdings, fears emerged that CEO Michael Saylor might initiate sales. While Bode considers this risk real, he believes it to be limited, akin to concerns investors have when Warren Buffett takes a large stake in a company, while also emphasizing that bitcoin is resilient enough to withstand such market pressures.
Another emerging factor in the discussion is the proliferation of “paper” bitcoin—financial instruments such as exchange-traded funds (ETFs) and derivatives that mirror the cryptocurrency’s price without actual ownership of the coins. Though these instruments increase the effective trading supply, Bode stressed that they do not change bitcoin’s hard cap of 21 million coins, which remains a critical anchor for its long-term value. He drew parallels between this situation and the silver market, where increased paper trading has historically suppressed prices temporarily until physical demand ultimately drove them higher.
Concerns regarding rising energy costs potentially hurting bitcoin mining and impacting the network’s hash rate were also addressed by Bode, who deemed this theory exaggerated. Historical data indicates that past price declines of bitcoin have not consistently resulted in immediate hash rate drops, and when they have occurred, they typically lagged behind price changes. Furthermore, he highlighted the potential for emerging energy technologies, such as small modular nuclear reactors and solar-powered AI data centers, to provide low-cost energy solutions for mining operations in the future.
Lastly, Bode spoke to criticisms surrounding bitcoin’s role as a “store of value,” particularly in light of its volatility. While critics argue that such fluctuations disqualify bitcoin from this designation, Bode counters that nearly all assets involve some form of risk, including fiat currencies backed by heavily indebted governments. He pointed out that even gold requires energy to secure unless one is comfortable leaving it unsecured at home.
In conclusion, Bode framed the recent decline in bitcoin’s price as an expected outcome of the cryptocurrency’s design, insisting that volatility is an inherent characteristic of the asset. He advised investors that price swings, no matter how dramatic, should not necessarily be interpreted as indicative of systemic risk. Those willing to endure the inherent volatility may ultimately find considerable rewards waiting in the long run.
