While the recent price drop is “nasty and abrupt,” it is not unusual in bitcoin’s history, Bod notes in his postings on the X network.
“Drawdowns of 80-90% are common. Those who were willing to endure the always temporary volatility have been generously rewarded with incredible long-term returns,” coindesk.com quotes him as saying.
Causes of turbulence
Much of the recent turbulence, according to the expert, can be attributed to the market’s reaction to the nomination of Kevin Warsh to replace Jerome Powell as chairman of the US Federal Reserve.
Investors took this move as a signal of possible tightening of the Fed’s policy, raising interest rates and reducing the attractiveness of zero-yielding assets such as bitcoin, gold and silver. Margin calls on leveraged positions intensified the downturn, triggering a chain reaction of forced sell-offs.
However, Gary Baude refutes the market’s interpretation. He pointed to Worsh’s public statements in support of lower rates and President Trump’s remarks suggesting that Worsh had promised to lower the federal funds rate.
Other commonly cited explanations, he said, also fail to reveal the full picture. One theory is that “whales” – early bitcoin holders who mined or bought coins when prices were near zero – are draining their assets. Gary Baude acknowledges that large wallets have been active and some big sellers have emerged. But he sees these actions as profit taking rather than a sign of long-term weakness.
“The technical skills of early users and miners deserve respect,” he said. – However, that doesn’t mean their sales (full or partial) tell us much about bitcoin’s future.”
“Natural consequence” of bitcoin’s design
Hedge fund veteran Gary Baude also pointed to the actions of Strategy ($MSTR) as a potential source of short-term pressure on the bitcoin exchange rate.
The company’s shares fell after bitcoin fell below the prices at which Strategy purchased most of its assets. This raised fears of the start of major sales by the company.
Baude characterized this risk as real but limited AND compared it to a situation where Warren Buffett buys a large stake in a company: investors see this as support, but worry about possible subsequent sales. He emphasized that bitcoin itself will survive such events, although prices may temporarily decline.
Another factor is the rise of “paper” bitcoin – financial instruments such as exchange-traded funds (ETFs) and derivatives that track the price of the cryptoasset without the need to own the underlying coins.
While these instruments increase the effective supply available for trading, they do not change bitcoin’s hard cap of 21 million coins, which Bode said remains an important anchor for long-term value. He drew parallels to the silver market, where initially the rise of paper trading holds prices down until physical demand drives them higher.
Some analysts have suggested that rising energy prices could negatively impact bitcoin mining and depress long-term prices. Bode believes this theory is exaggerated.
He also pointed to new energy technologies – including small modular nuclear reactors and solar AI data centers – that could provide inexpensive energy for mining in the future.
Bode also addressed criticism that bitcoin is not a “store of value.” While some argue that its volatility excludes it from that role, Baude points out that almost every asset carries risk – including fiat currencies backed by heavily indebted governments.
“Gold requires energy to be safe, unless you’re willing to leave it on your porch,” he said. – A paper bitcoin may affect the short-term price, but in the long run there will be 21 million coins. And if you want to own bitcoin, that’s the real asset. Bitcoin doesn’t require authorizations and doesn’t depend on trust in the counterparty.”
Ultimately, Gary Boda’s assessment sees the recent drop as a natural consequence of bitcoin’s design. Volatility is part of the game, and those willing to endure it may eventually be rewarded. For investors, the key takeaway is that price swings, however dramatic, are not necessarily indicative of systemic risk.
