Why bitcoin is ‘probably the most volatile major asset in history’: Expert

Andy Edstrom, Swan Bitcoin Managing Director of Swan Advisor Services, joins Yahoo Finance Live to discuss crypto firms' warnings on coin collapse, bitcoin's pricing volatility, and the financial risk and scamming involved in the cryptocurrency market.

Video transcript

JARED BLIKRE: And the story out of New York is just the latest in a string of headlines this week, raising concerns about what's happening across the crypto space. Coinbase is extending its hiring pause for the foreseeable future, while Gemini is laying off 10% of its workforce, warning that, quote, "crypto winter," it is now here among us. Joining us now to discuss is Andy Edstrom. He is the Swan Bitcoin managing director of Swan Advisor Services. So what are the details here, Andy?

ANDY EDSTROM: Yeah, well, if we're talking about whether we're in crypto winter or not, you never know until it's already happened. So people usually talk about the period after the 2013 price peak in Bitcoin or after 2017 price peak in Bitcoin, when companies were slowing down, some went out of business, some people left the industry. You never know, in the moment, whether you're going to be inside of a multi-year downturn in the industry. So it's too early to call.

I do think that the recent news with respect to hiring at Coinbase and Gemini does indicate a slowdown overall in Bitcoin and in digital assets. But it remains to be seen how long that downturn will last.

SEANA SMITH: And Andy, when you take a look at this, I mean, Bitcoin, it's off, what, 44% in the past six months. Some concern there just in terms of how investors are potentially looking at crypto because when you see this type of volatility, you would think it would scare most investors away. What are you seeing, though?

ANDY EDSTROM: Yeah, so, Seana, it's true that Bitcoin itself is probably the most volatile major asset in history. And in fact, despite the fact that we're down more than half since the peak in price, like you suggested, the reality is the volatility of Bitcoin's price in dollar terms has come down over the many years that it's been in existence now. Bitcoin came about 13 years ago. About 11 years ago was when we got reliable price data on a continuous basis for Bitcoin. And since then, the volatility has almost every year reduced over time.

So there's no doubt that Bitcoin is ambitious with respect to what it's trying to be, which is a digital hard money asset akin to digital gold. If it reaches even that potential, its value is likely to be much, much higher than it is today. And so between where we are today and the future and Bitcoin possibly reaching that potential, at least as digital gold, it's not surprising at all that the price is volatile and relatively more volatile than other major asset classes in investors' portfolios.

JARED BLIKRE: And Andy, I'm looking at your notes here. You're highlighting the fact that we are a year now past the halving. And that is where the rewards for mining Bitcoin are cut in half. And of course, this speaks as to the eventual end game, which is that we will have a fixed supply of Bitcoin at the end. And I would also add that last year, that Chinese slowdown, that Chinese ban was kind of another halving, because it cleared out a lot of crypto miners, a lot of the inefficient ones. I'm just wondering how you view the effect that this is having on Bitcoin.

ANDY EDSTROM: Yeah, so you're right. So the halving is a major factor in the evolution of Bitcoin over time. And as you pointed out, every time we have a halving, the magnitude of that emission rate is reduced. In the early years, there was a lot of new Bitcoin being issued. And then every time we have a halving, that reduces over time. But also the magnitude of that reduction falls over time.

With respect to China, I think China was a major watershed moment in Bitcoin. There was a lot of fear prior to that event that the Chinese government or some organizations or agencies within the country could take over Bitcoin or shut it down or materially adversely affect the network. And what we saw was, actually, what was supposed to happen, as with any robust, decentralized network, did happen. Miners relocated, in large part. The network continued operating uninterrupted, continued clearing billions of dollars' worth of transactions per day and basically hummed along.

The price did go down, of course. And we subsequently discovered that it appears that a decent amount of the mining still remains in China, despite the fact that the Chinese government has attempted to push it out. I think that's indicative of the fact that it's very difficult to kill Bitcoin. Extremely difficult. And it's difficult even, really, to contain it within any particular jurisdiction. This is one of the key features of Bitcoin, both as a monetary network and as an asset, which is, it's extremely hard to kill. And over time, it seems to become more and more robust, as the network grows and as more individuals and entities participate in it.

SEANA SMITH: Well, Andy, as crypto does grow and Bitcoin grows in popularity, FTC was actually out with a report today, saying that more than 46,000 people have lost more than a billion dollars in crypto scams since 2021. We talk about more and more instances of this. As someone that's in the industry, how are you looking at this and just the potential risk that this poses?

ANDY EDSTROM: Yeah, so Bitcoin itself has hundreds of billions of dollars of market value. And as I mentioned, it clears billions of dollars of transactions on a routine basis. If you look at the broader digital asset space, you're talking in excess of a trillion dollars of current market capitalization or value. I'd be sort of shocked if you didn't have some significant scamming and losses basically due to scams. And I don't mean to make light of it. But this is a trillion plus worth of market value that we're talking about.

And so, it's really inevitable that you're going to get people that show up, bad actors, thieves, essentially, that attempt to take advantage of the opportunity that is afforded to them. Any time there's money sloshing around in a relatively new area-- I say relative. I mean, Bitcoin, as we said, is more than a decade old. But relatively new area that is well capitalized-- you're going to have crime, basically. You're going to have scammers. You're going to have people getting taken for a ride, swindled, essentially.

And so, unfortunately, this is a natural event in any major new assets, in any major new area that's creating tremendous value. And so, it is the job of the regulators and of law enforcement to do their best to keep a handle on this thing. And so, there are hard working members of various agencies in government that are doing their best to protect people from scammers. But it is an ongoing battle. The battle is never won. And to be honest, I don't think it ever will be, as long as human nature exists and people seek to make money.

JARED BLIKRE: Well, we've got to leave it there, but really appreciate you stopping by here. Andy Edstrom, Swan Bitcoin managing director of Swan Advisor Services.