The Pomp Podcast - #1034 Kevin O’Leary On Why Crypto Regulation Is Coming Fast

Starting point is 00:00:00 what's up everyone this is anthony pompliano most of you know me as pomp you're listening to the pomp podcast simply the best podcast out there now let's kick this thing off kevin o'leary is the star of abc shark tanks and he's also the chairman of o shares in this conversation we talk about bitcoin mining stable coins regulation and much more i always enjoy my conversations with kevin and i hope that you guys enjoy it as well before we get into this episode though i first want to talk about our sponsors. This episode is brought to you by Bullish. Bullish is a powerful new digital asset exchange built for institutions that delivers the innovations of DeFi in a regulated environment. The Bullish hybrid order book pairs the high performance of a traditional

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Starting point is 00:03:03 to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only. Mr. O'Leary, how are you, my friend? Great to be here. Thank you so much. Of course. How are you?

Starting point is 00:03:18 Well, I'm crispy around the edges. Let's jump right into it. Bitcoin mining, the public miners are down significantly. You were telling a lot of people that you were getting out of mining stocks a few months ago. What's your general read right now on miners and kind of the price drawdown that they've experienced alongside the drawdown in Bitcoin price? Well, you remember this problem started about a day after the original memo from the SEC about five months ago talking about carbon credits being audited. And so basically what's happened since is, and this is a little complicated, but the data is irrefutable now. When you set up a mining operation, as we had multiple public miners last year, they were being used as a proxy by institutions to buy Bitcoin because the price of the mining shares, whether it was a hot aid or a riot or a marathon and many others, really was a great proxy for Bitcoin volatility. You bought those shares, Bitcoin goes up, the shares went up. Bitcoin goes down, the shares go down. It was almost a perfect correlation, regardless of how many megawatts each of these companies

Starting point is 00:04:37 had mining. Nobody cared about the source of power at that time. But then along came that memo, when basically what it said is, look, if you're a public company, you got to get your auditors to sign your public statements. And we're going to add a little attribute. If we have our way, we're going to actually, if you're using carbon credits or offset, that's, we're going to have you sign that too. And basically what the SEC was saying is they were calling BS on carbon credits. So many companies said, look, yeah, I'm using coal or

Starting point is 00:05:09 flared gas to mine Bitcoin, but I bought an acre of the Amazon. It's got a thousand trees. So it's an offset. Well, the SEC said, get me an auditor to sign that. So if you call any of the big five audit firms, they're not going to sign that because there's no ledger to carbon credits. It was that day, and I won't forget it, when I started getting calls from the larger sovereign and institutional accounts that were using the index to strategize holding Bitcoin by holding the public miners. And wow, were they dumping stock. So, I mean, they read the writing on the wall.

Starting point is 00:05:49 A lot of these companies are going to face bankruptcy because they levered their Bitcoin mining borrowed money to build more facilities and they're offside 50, 60 percent plus leverage. But the bigger problem, Pomp, is this. Let's say you want to raise new capital because I'm in the mining business and I want to raise. Let's say you're going to do a 300 megawatt facility in a friendly state like North Dakota or Montana or South Carolina where you can get power. You can get a plug in for less than four cents a kilowatt hour, which is what you need to be globally competitive. You have to find a power source behind the meter. In other words, where you can prove to someone that you are compliant from a carbon perspective. And that really points

Starting point is 00:06:38 to nuclear power and hydropower. So all of a sudden, places like northern Norway, where we have a facility being built in a company called BitZero, we're behind the meter. Every electron comes from a giant hydro dam, no need for a carbon audit. And we're able to raise money because the institutions that provide the funding, whether it be debt or equity, understand there's no risk. Take any other public miner, ask them where their power comes from. They say it's blended. They don't know, basically. And that's the problem the existing miners have. In a way, they're kind of screwed. But I think a new generation of miners emerging. I'm not the only guy doing this. There's other funds out there that are basically finding hydro

Starting point is 00:07:23 and nuclear power and regenerating this industry from scratch at a carbon zero footprint. It's not just Bitcoin mining. It's Ethereum. It's any data center. This is going to be the issue going forward. So the older miners, their stocks are down 70 to 90 percent, not coming back. Sorry. Kevin, is it your belief that many Bitcoin miners should go and start using nuclear power to mine Bitcoin? Yes, absolutely. And hydropower. There's no question about it. What if there's excess power, there's no better way to store the value than mining. There's no better way. And so the mining industry, which has taken such a bad, bad, bad PR, extremely bad PR in the last six months, it couldn't be worse. It's getting accused of every disease known to man. They're actually

Starting point is 00:08:13 doing something very important. They're advancing technology and mining technology and semiconductor technology and heat technology. Every generation, every 36 months later, there's a new technology that's more efficient in terms of mining, which is a good thing for everybody else. And also they're taking excess power. Let's go back to Norway. In the 50s, they built so much hydroelectricity that over half of it's never used. It goes over the dam and it's never used. Now with Bitcoin mining, these miners can go into those communities and create jobs, data centers. Excess heat is doing hydroponic growth there because they're in basically an Arctic climate and storing value by creating Bitcoin, paying taxes. In Norway, they don't get thrown out of the country. They're

Starting point is 00:08:59 embraced by the government there because they see the imputed value. Look at what happened in New York, all of that power going over Niagara Falls is being wasted because no Bitcoin miners can set up there. The government's gone berserk and chased all the capital out of there. In fact, that Norway project started in upstate New York. And after the government went wonky on policy in that state, moved all of the mining facility to Norway where they're accepted. So there's a lot of differences between policy in different states. You've got to go find the ones that are willing to embrace the concept of mining for the reasons that it has merit, which is basically to store value in unused power. One of the most important, Kevin, one of the most important topics right now in finance

Starting point is 00:09:46 is inflation. We've seen the president of the United States, President Biden, come out and order via Twitter gas stations to lower their prices. We've seen them blame everybody from Trump to COVID to Putin, the whole nine yards. What is going on? And are they simply, as Jeff Bezos suggested, trying to do misdirection on inflation? Or do they not actually understand the basic market dynamics of what's driving the inflation that we're facing right now? Unfortunately, for Biden and the administration, there were some policy mistakes made early in the mandate over two years ago, particularly around energy. There's two pressure points that are causing all of this political activity.

Starting point is 00:10:27 One is inflation on energy. Five to seven dollar gasoline per gallon is just a killer when it comes to midterm elections. There's no getting around that problem because people see that every time they fill up their truck or car. And then, of course, protein, the food supply chain in the U.S. from chicken on down is up between 30 and 48 percent. So food and energy are very political in nature because you're forcing families to spend so much more of what they make on things that they never had to worry about. Now they do,

Starting point is 00:10:59 heating their homes and just feeding their families. And so it's very difficult to reverse the mistakes made in energy. Let's start there, canceling the XL pipeline, canceling leaseholds on federal land, shutting down offshore development, canceling the activity that was going on in Alaska, which was very prolific in terms of providing gas and oil, really making it hard to figure out carbon costs if you're if you're using, you know, any kind of fracking service. And so all of a sudden, of course, we're no longer energy independent. We're in a perverse situation that even before the Ukraine war, we had Russian tankers coming into the Boston Harbor. So that's policy mistakes. And, you know, takes time to fix that. When Biden goes over to Saudi

Starting point is 00:11:46 Arabia to get more oil from them. It won't matter to energy prices in the U.S. because we don't have enough refinery capacity. We just canceled another refinery. We need three more. Again, bad policy. Now, where this is going to manifest itself in a very ugly way is at any midterm election, the incumbent loses seats in the House. I fear for Biden's administration a complete slaughter fest in the midterm election. Everything's going to turn. It's going to be brutal. And I think what do you do? What can you do if you want balance? You're not going to get it here. There's going to be a lot of seats lost in the Democratic Party. And in a way, they did that to themselves on bad policy. And of course, they're scrambling and anything can

Starting point is 00:12:32 happen between now and fourth quarter. But I'm not optimistic for him. And, you know, he was given a mandate to solve for the pandemic he did a reasonably good job there but this energy policy and what happened in inflation caught him off guard and i'm not sure what can be done to fix it because it's not getting better anytime soon yeah it's pretty crazy uh speaking of politics we can talk about regulation we've seen gbtc and the grayscale team they're trying to convert into an etf uh their most recent application was denied uh and so within hours they went ahead and they began the process to sue the SEC. Their argument is the SEC has already approved futures-based ETFs, both long and short. There's other spot Bitcoin ETFs around the world. We don't have

Starting point is 00:13:20 one here in the United States. I don't know how much you can comment or not, but what's your general take on Bitcoin spot ETF in the United States and maybe Grayscale's chances to be the first to get that conversion? Yeah. Here's how I look at it from the perspective of working in financial services and working within the system on a regulated basis, and I have for years, suing the SEC is a really bad idea. It virtually never works. They have unlimited resources. It's a bravado thing to do, and I'm sure others in the industry are applauding this, but the outcome is never good because they don't like getting sued and they have tremendous powers to avoid being embarrassed and try to embarrass the regulator into submission. Well,

Starting point is 00:14:16 Pomp, that just doesn't work. And so this is not the path of least resistance. And I do not want to comment on what they're attempting to do other than saying, from my point of view, this is a personal opinion, it borders on insanity. It's not a good playbook. And I think if I were on that board, I would be pretty noisy in the boardroom about this. Now, having said all that, I'm more optimistic on other strategies in terms of getting some policy in crypto. And, you know, we should talk about the next six months because you've got lots of evidence now of bipartisan interest in getting some policy in place, not in a combat way by suing regulators, but in a way in cooperation on a bipartisan basis. And let's make it real easy. OK, we're not going to get everything regulated overnight. We may not get an ETF in the US for two or three more years, but that's not the only thing that matters.

Starting point is 00:15:24 What I'd like to see and a lot of others, too, would take one asset, one asset, a really bipartisan asset in the form of stable coin. Now, not all stable coins were created equal. We know the meltdown on Luna. of that story is well known. Algorithmic based stable coins may not be the best idea, be very hard to launch another one. But assets like USDC that are backed by the US dollar have not broken a buck recently. And if that was made and was allowed to be regulated, it could become the default payment service for the world backed by the US dollar because everybody would use it because so many commodities, including oil, are actually paid in U.S. dollars. Imagine if you could use USDC to transfer between jurisdictions and geographies. It's far more efficient,

Starting point is 00:16:17 better ledger, more transparent, lower cost, way faster. What senator doesn't like that idea, making the U.S. dollar king dollar, keeping it at the supreme default currency? I don't care what party you're in. That's a good idea. The policy being proposed by the Toomey and Hagerty bills, and even contemplated in the Loomis bill, which has much more than just stablecoin. Let's just take the stablecoin. If Toomey is going to retire in January, he would endorse this if he could get it passed by the end of this year. It would be a fantastic thing.

Starting point is 00:16:55 And everybody in the crypto industry, including all the institutions that don't own it yet, would see the very first marker of policy on a very basic asset, stablecoins. And contemplated in the policies, very simple, full audit every 30 days. What's wrong with that? Makes sense to me. And no assets held supporting the token or coin with a duration longer than 12 months. What's wrong with that? That looks like a money market by Fidelity or by Schwab.

Starting point is 00:17:24 I've been talking about this now for three months, and I'm really working hard going to Washington, trying to do whatever I can as a private citizen to push that agenda. Just one thing. Let's get one thing done. And I will also note, since you and I last talked, that Fidelity and BlackRock each put in $200 million. That's a lot of money into a Series F at Circle. Now, if that isn't accommodating and supporting the notion of a regulated stablecoin, I don't

Starting point is 00:17:55 know what isn't. I mean, that is as good as it gets. Those are the most conservative financial institutions in the world supporting the idea of a stablecoin backed by the US dollar. Talk to me about disclosures. You mentioned, obviously, Luna. There's a lot of people who had questions there. We've seen many other companies that have struggled over the last couple of months. And it feels like alongside this idea of more regulation is more requirements on the disclosure front. What are you seeing there? What do you think is the likely path that we'll get? There's no question there's going to have to be more disclosure. There's going to have to be more transparency. But the truth is, and this is something the entire industry has to really get their head

Starting point is 00:18:35 around, if we can get some policy, even though it will require additional compliance costs, more disclosure, more transparency, it opens the floodgates of institutional capital that have been waiting to come into the crypto market. just in a payment system alone, let's say four or five different stable coins got licensed. It would be a phenomenal outcome because you would, for the first time, be able to get a one or two or 3% indexed allocation from sovereign funds running 500 to $900 billion. The kind of guys that I service in the indexing business. I'm not the only person doing it. There's lots of others, but we talk to these funds all the time and they say the same thing over and over again.

Starting point is 00:19:20 Give me some policy. Show me I'm not offside with the SEC and I'll give you a 1% allocation, sometimes a 3% allocation. That goes for Bitcoin. That goes for Ethereum, Solana, Polygon, stable coins. Just give me a regulated position. That's all they want. So for all of the angst and all the headaches and everybody worrying and gnashing their teeth and rubbing their hands together about disclosure, who cares? Let's get this policy done. And if you want to see Bitcoin $100,000, that's how you're going to do it. You're going to get the sovereign wealth funds to allocate to it. I'm a believer in that. That's why I stay long in these troubled and difficult times.

Starting point is 00:20:05 But I'm 100% compliant. Everything I touch is regulated, whether I own an exchange in a country like Canada or trying to buy a license in the UAE. I'm working with the regulator. I don't want to be a crypto cowboy. It just shows you what happens when you're a crypto cowboy. You get wiped out. You and I both have on suits and ties right now. It's like the old days where you used to tell me all the time, you say, hey, I forbid you. But now here we are together sitting in the regulated crypto market. What are you most worried about over the next, let's call it six to 12 months?

Starting point is 00:20:36 what's the thing that you're like, man, people really got to pay attention to this. And I don't think enough people are paying attention to whether it's a risk or a potential surprise on the horizon. So people ask me every hour of the day, are we at the bottom? Is it time to buy? And we're not. And the reason I say that is, let's just talk crypto markets, all crypto markets. I don't care what asset class you're in within crypto markets, what coin, what token, what asset, what project, I don't care. It doesn't matter. We're not at the bottom yet. What defines a good bottom is a panic event. Now, we've had some good bankruptcies, but they're all small. You know, yesterday's announcement, Voyager, it's irrelevant. It's so small and so

Starting point is 00:21:19 decentralized in the sense that the shareholders are all over the place. And it's not really going to hurt anything. But so it doesn't bring the panic bottom that you need. What defines great bottoms is panic in the streets, massive capitulation, massive selling, massive volatility. And then you flush it out. That big toilet in the sky has to flush. It's coming soon. I feel it coming. Somebody's offside. Somebody's over levered. These small guys going to zero just never knew how to manage risk because they'd never experienced anything like this. Now, the good news for them is they've learned, you know, learn grasshopper, learn, don't leverage yourself up like that with an asset that you can't ever peg the bottom on. So they got wiped out.

Starting point is 00:22:09 So what? It's a great learning experience for them. They'll be much better managers going forward. And the shareholders chalk it up to entertainment, no different than going to Las Vegas. You took that kind of chance with leverage. You got wiped out. Learn. That's the whole point. But the big event hasn't happened yet. It's coming to a theater near you shortly. I don't know who it's going to be. Somebody's gnashing their teeth right now.

Starting point is 00:22:33 Somebody's way over levered. Somebody's trying to borrow cash. And tomorrow morning, you might find out who it is. I'm looking forward to that one. That's when you go back into the market, when it's absolute panic in the streets and it will happen. When you think that we're at the bottom, which you claim that we are not yet. We'll see. Do you just take a slug of cash and you're all in on one shot or do you try to dollar cost average your way in? Like what's your strategy, whether it's in crypto or just other markets in general? How do you normally think about reentering a market? Yeah, I've never been able to time the bottom. It's impossible. So I've already started to layer in primarily in equities now because, you know, we're still not at the

Starting point is 00:23:12 bottom there either because P's are still a little expensive. I anticipate if we could get down to 15, 15 and a half P on the S&P, then you can cherry pick the top 100, you know, highest quality balance sheets in the S&P 500. And that'd probably be a good place to put some money to work. And you'd be layering in. Nobody knows about the recession. It's pretty hard to have a recession of full unemployment, you know, full employment. I mean, we don't have, you know, any, this is not your typical recession. I can tell you that. I haven't even seen any results yet of private companies I've invested in slowing down at all yet. We can't even hire anybody. So we're in a different kind of time right now. And we'll have to see where that goes. But in crypto, you get a

Starting point is 00:23:52 lot more volatility. And, you know, obviously the granddaddy asset is Bitcoin. It's holding its own at 20,000. But if you saw that spike down in a panic sell off that somebody had to off their coin because they're, you know, being margin called out and that thing dropped to 15,000 or something, that would be a good place to start putting money to work in again. And I'm not saying it will or won't happen. It's just we're not at the bottom yet of that, I'm sure. And so you got to you got to hold your nose and wait and see what happens. And in the meantime, if you have a position as I do, you just ride it out. I don't use any leverage in crypto, zero leverage. So it can go to zero and it doesn't wipe me out. Crypto is not leverageable yet. It needs to have policy

Starting point is 00:24:41 and it has needs to be regulated and then the volatility will go down then you can put on some leverage to goose returns the guys that put on the leverage are wiped out and every day you hear another story wiped out to zero you got pants on no no pants on all right my friend listen i appreciate you as always coming on where can we send people to find out more about what you're doing in Bitcoin and crypto? Well, Kevin O'Leary TV on every platform, you know, LinkedIn right through to Twitter. My fastest growing platform uniquely, which is so interesting because now a lot of Kryptonians are there, is TikTok. Who knew? Are you on TikTok? You bet. I got hundreds of thousands. I just started. I'm up to 600 and something thousand. So it's really taking off

Starting point is 00:25:31 and it's our fastest growing platform. And that content is unique. You have to produce it as you know make me a promise hold on make me a promise you don't go on tiktok have your team post it because i can't lose you i don't need you addicted to tiktok i'm on tiktok every day what i try and do is have some fun with all of this you know it's at this you gotta you have to realize that no one knows with certainty particularly in crypto what's going to happen next but we're starting to see and this is really good in this sense the reason i think we should all be optimistic, probably a great way to leave this, is that every time you see a company go to zero, that's a broken business model that's been wiped off forever. No one's going to do the same

Starting point is 00:26:16 thing again. Everybody's going to learn from that mistake. So, you know, I don't want to name the zeros, but you know who they are. They're happening every day now. When they go to zero, it's a good thing because that business model, that amount of leverage, that idea does not return any time soon. And so the market gets better. And so the remaining assets get stronger. And that's my premise. You can see all the work that Sam Bankman Freed is doing, looking at all these opportunities, taking new positions all over the place. He's probably buying at the bottom in some of these situations. So I think it's a pretty smart move on his side. But there's a guy that understands leverage. I mean, he's been in the trading business forever. And so he understands

Starting point is 00:27:00 risk mitigation. Some of these other guys forgot about that and they're learning a very important lesson. As always, at Kevin O'Leary TV on all platforms and, you know, every once in a while on ABC Shark Tank as well. I appreciate it very much and we'll talk soon. Take care. Bye-bye. All right. Later, buddy. Thanks so much for listening to today's episode. I really hope you guys enjoyed this one. Make sure you're subscribed on Apple, Spotify, or your favorite podcast player. And if you're looking to try to transition to get a new job in the Bitcoin or crypto industry, we've got you covered. Head over to palmscryptocourse.com. We've developed a curriculum with the top teams across the industry. It's a three-week intensive training program with

Starting point is 00:27:41 over 50 events packed into that three-week time period. Go to palmscryptocourse.com to learn more and I'll meet you guys for the next episode.

The Pomp Podcast - #1034 Kevin O’Leary On Why Crypto Regulation Is Coming Fast

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