Bitcoin’s recent selloff, which has seen the cryptocurrency fall nearly 50% from its latest highs, reflects its inherent volatility and a market misinterpretation of Federal Reserve policy rather than any fundamental deterioration, according to hedge fund veteran Gary Bode.

The sharp decline has renewed debate over bitcoin’s resilience, but Bode argues that large drawdowns are a recurring feature of the asset’s history and have not prevented strong long-term performance.

In a post on X, Bode described the drop as “unpleasant and jarring,” but emphasized that even deeper corrections are common. “Eighty to ninety percent drawdowns are common,” he said, adding that investors willing to endure bitcoin’s volatility have historically been rewarded.

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, putting pressure on non-yielding assets such as bitcoin, gold and silver. That shift triggered margin calls on leveraged positions, accelerating 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 influence over longer-term Treasury yields, which play a larger role in setting borrowing costs across the economy. “I think the market got this one wrong,” he said, arguing that perception rather than fundamentals drove much of the selling.

Bode also pushed back on other commonly cited explanations. One theory suggests early bitcoin holders, often referred to as “whales,” are unloading large positions. While he acknowledged that some large wallets have been active, Bode characterized the activity as routine profit-taking rather than a signal of long-term weakness. Sales by early adopters, he said, offer limited insight into bitcoin’s future trajectory.

He also pointed to Strategy (MSTR) as a potential source of short-term pressure. The company’s shares declined as bitcoin fell below the prices at which it accumulated much of its holdings, raising concerns that founder Michael Saylor could be forced to sell. Bode described the risk as real but limited, likening it to investor anxiety when a prominent buyer amasses a large stake. Any such selling, he said, would likely be temporary and would not undermine bitcoin’s long-term fundamentals.

Bode further addressed the rise of “paper bitcoin,” including exchange-traded funds and derivatives that provide exposure without transferring ownership of the underlying coins. While these instruments increase the amount of tradable bitcoin exposure, he said they do not change the asset’s fixed supply cap of 21 million coins. He compared the dynamic to the silver market, where expanded paper trading can initially suppress prices until physical demand reasserts itself.

Concerns that higher energy costs could damage bitcoin mining economics and reduce the network’s hash rate are also overstated, Bode said. Historical data shows that hash rate declines, when they occur, typically 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 over time.

Finally, Bode rejected claims that bitcoin fails as a store of value due to its volatility. He argued that all assets carry risk, including fiat currencies backed by heavily indebted governments. While paper instruments can influence short-term price movements, he said bitcoin’s long-term value remains anchored by its fixed supply and permissionless structure.

In Bode’s view, the latest downturn is a reminder of bitcoin’s design rather than a warning of systemic weakness. Volatility, he argues, is part of the asset’s nature, and sharp price swings should not be mistaken for signs of a broader crisis.