The Wolf Of All Streets - Every Unregulated Token Will Go To Zero | Kevin O’Leary

Starting point is 00:00:00 What's the game plan? They have no idea. There's too much poo-poo in the system. And so I moved it up to Canada under the eye of the regulators. Yeah, I'm going to launch a token called Poo-poo. Let's see what we can do. So I try to keep telling my wife as I come home with another piece, since this is all about investing, she knows. Totally. You would never sell them, but whatever.

Starting point is 00:00:19 I've had the opportunity to speak with Kevin O'Leary multiple times over the last 18 months, and our conversations have largely evolved and honed in on the importance of regulation in the crypto space. He talks about what happened with FTX and what we can see coming in the future. You guys don't want to miss this. You and I have spoken at somewhat regular intervals over the past year, 18 months at this point, about every six months, the last time being in October in Vegas. At the time, there was quite a bit of contagion in the crypto market. Obviously, the big issue dropped with FTX after October. Has anything as a result of this contagion, the FTX debacle, has anything fundamentally changed?

Starting point is 00:01:13 What's your bird's eye view of the crypto market right now? Well, first of all, an update on FTX. The narrative there has moved into recovery. And so when you think about the hundreds of cases that have been brought from litigation and, of course, the regulators investigating and the bankruptcy courts involved and various constituencies that have interests, this will take five, seven, 10 years to resolve itself. But there's already indications that $5, $6, $7 billion are floating around. And yet we still don't have any records.

Starting point is 00:01:47 So those that had accounts on FTX are still waiting for the backup files. And there's talk about lighting up the exchange again, geolocking it or locking it, gating it so you can't extract any assets. But at least you can see what you still have in the accounts. So all of that's going forward. Now, if you could call a silver lining out of this, there's two forks in the road regarding the entire crypto market to think about. The FTX debacle or alleged fraud or whatever you want to call it, poked the bear in Washington, D.C. And immediately there was yet another Senate hearing. And I attended those

Starting point is 00:02:25 hearings. I testified at them. And while in Washington, I got a chance to meet with some of these senators. And I can tell you with certainty that there's a certain fatigue. That's a good word for it. They're tired of gathering every six months when the next crypto company blows up and goes to zero. They're quite agitated. They're done with it. And so they have decided to start pursuing a more aggressive regulatory tone. And you've seen that in some of the activity that's going on in unregulated exchanges, the scrutiny, the Gensler activity at the SEC. There's a real crypto winter going on here. Now, Bitcoin itself has had a bit of a recovery, and there's been some trading range between that high

Starting point is 00:03:15 $16,000 and $23,000. But there'll be no advancement in crypto until we actually resolve this regulatory gridlock. And so the good news is, and I can give you a little more granularity, Senator Toomey left, he retired, and he was carrying the, let's call it the digital ball, the digital baton in the Senate with his staff. And now it looks like Hagerty is picking up the ball there. And we don't know yet what that's going to look like. But these senators were after one thing. They wanted digital payment systems to be advanced.

Starting point is 00:03:51 And so that's not the entire crypto market or NFTs or anything. It's just that they're saying, if there's a way to use the American dollar on a digital basis to become the world's payment system, they'd be interested in that. And that's where I think we're going with the next set of hearings. Now, that's one side of the ledger. And I said the other fork in the road. Here's the other fork. Unregulated exchanges, or let me repeat that, unregulated exchanges that issue tokens as faux equity or fake equity. And this was done often. FTX did it, Binance does it, to entice you to buy these tokens to get trading credits on the platform. The regulator really doesn't like that at all. And indeed, those tokens, the FTT tokens, were the downfall or the final knife in the back of FTX,

Starting point is 00:04:42 $550 million forced down their throat the week of November 6th, which caused no choice but a bankruptcy. And whether or not these alleged frauds are discovered the way everybody's speculating, that'll come out in court. But there's another giant token out there, BNB, and that's worth about $64 billion. Or is it? And what's it backed up by? Who's auditing it? Where's the transparency?

Starting point is 00:05:11 And so it's not clear what the next shoe is to drop. And since you and I last talked, there's been multiple bankruptcies, and the last was Genesis last week. I speculate that there'll be many more. We're not done here. There's so much garbage still floating around in crypto that has to be flushed out of the market. And then I think what will happen is we'll come out of the ashes like a phoenix rising with what the merit is of crypto, the potential of crypto. After all, crypto is just software. There's nothing nefarious about software. It's all the bad actors and fraudsters and all this

Starting point is 00:05:48 stuff that have caused this debacle. But I believe that in the next five years, this will be the 12th sector of the economy. However, with one caveat since we last talked, most of the players that you know today that make up the crypto market won't be here because they have no idea on how to make market or make money even in a regulated environment. And so when they have to face the realities and the costs and the burden of regulatory compliance, they won't survive. And so there'll be a whole new cast of characters that come in that are more used to working within a regulated environment and bearing the cost of those and knowing how to run a business under the scrutiny of regulation. That's the transition we're going to make. That was a long answer, but that's exactly where we are today in crypto. We've got a long way to go to flush out the garbage.

Starting point is 00:06:44 At some point after FTX, I tweeted something to the effect of Wall Street's going to come in and buy up this entire industry for pennies on the dollar. And my premise since then has been that we're going to see massive distressed asset funds and investments from the biggest players on Wall Street. And that really aligns with what you're saying here. What you're basically saying is that the people who have been doing this for years in other markets don't care if it's crypto or if it's tulips or if it's stocks or if it's Forex, it's all an asset that they can trade. And so maybe that's who's going to come in and start controlling this industry. Well, you're 100% right. right in fact you can see this starting to happen

Starting point is 00:07:25 now there's various pools of capital and syndicates being formed to bid for the assets of ftx the most valuable one is the portfolio alameda has and within there you know a lot of the investments alameda made uh leaving the whole alleged you know fraud out of the equation is many many different projects that have merit in crypto. And so you also have shares of Robinhood, you've got shares of WonderFi, you've got, and these are publicly traded companies. Those shares are valued every day on the open market. And so there's assets there to be bought. Now, to get someone to bid the entire portfolio is going to be tricky because you never know with certainty

Starting point is 00:08:05 what they're worth until you break them up and put them to auction. But my guess is it's going to be in that $1.5 to $2 billion range and bids will be taken. And we'll just see who ends up at the table for that. But it is a process. We're going to have to wait. But the idea that there's no value in FTX, I would say is not correct. There is value. We just don't yet know where it is and what portion of it was stolen and what wallet it is. All of this materiality has yet to be discovered. Yeah, I would say that it's been increasingly seeing optimism that there are a lot more assets than people believed at the beginning. I mean, markets were trading FTX claims at 9, 10, 11 cents in November and December. And as you've said,

Starting point is 00:08:53 now we have billions and billions of dollars sort of being found left and right. So maybe it won't be quite as bad for creditors as everyone thinks. I want to go back to your point about regulation. The senators are really talking about this and they're tired of it. I want to go back to your point about regulation. The senators are really talking about this and they're tired of it. I guess that begs the question whether they're going to come in now more heavy handed because of what they've seen, or if they're just more compelled to get something on the books that starts to give people clarity. I would hope it's the latter, but I have a sneaking suspicion it could be the former. It's the former. They're going to come in heavy handed. They have started a wide range of investigations

Starting point is 00:09:26 and pursuits of all kinds of transactions that have occurred over the last 36 months. Recently, you saw they went after an exchange no one even heard of, chasing down transfers from one wallet to another. They're not happy. They're tired of this. And they've got a lot of constituencies in the various states that have lost hundreds and hundreds of millions of dollars.

Starting point is 00:09:49 You think about a stat that's very disturbing. If you look at the last 24 months of crypto trading, I don't care whether it's a centralized or decentralized wallet, 80% of the people that bought into crypto on a consumer basis or even institutionally have lost 82% of their money in the last two years. There's a lot of really unhappy investors everywhere, not just in the US geography, all over the world. And so you can expect the same kind of heavy handedness in every geography. The likely outcome is what occurred up in Canada. It was the first license issued to a company called Bitbuy. It was the very first broker-dealer attached to an exchange license issued by the Ontario Security Commission. It was very, very restrictive. It started with just 11 tokens. Now it's up to 32. Every single one of them is monitored by the regulator. There's no co-mingling in the accounts. They're the largest in Canada. They also have a staking license,

Starting point is 00:10:53 one of two. So what I did, and I have to be in full disclosure, I became an investor in that platform because it's a public stock called WonderFi, because I needed a place to actually transfer the remaining of my crypto assets that weren't in my FTX wallets. I had big positions in Polygon and in Bitcoin itself and Ethereum. And so I moved it up to Canada under the eye of the regulators. So I have an account there. It's highly scrutinized. And the only way that operation gets to keep operating is to stay compliant month by month with a proof of assets and total transparency and audit and everything else. So that's going to be the passport format for every geography. I think the Swiss will adopt it. the exchanges in abu dhabi in london england

Starting point is 00:11:45 undoubtedly the sec and so this passport idea because one of the tricky aspects about crypto let's just take bitcoin it doesn't trade like a stock it's 24 7 in every exchange you can trade it anywhere so you need to have a passport system that says this exchange falls under the passport it's it's uh operating in compliance in all of the jurisdictions where it's granted a license so that it has the ability to attach to the banking system in each geography for offloading and unloading fiat currency. And that's what the value of that license will be. I think this is all coming. And I think that's how we'll emerge out of this. But it's going to squeeze out the unregulated rogue exchanges slowly but surely.

Starting point is 00:12:28 And the one last thing I'd say, and I think you've observed this multiple times since we've had this dialogue over the last year and a half, there is no institutional interest in crypto. For all of the talk about Bitcoin and the excitement of institutions, they own none of it. They still own none of it because they can't buy it. There's no compliance platform for them to do it on and their compliance departments won't let them. And the FTX debacle hasn't helped that situation. So we're a long way off to having price appreciation because virtually it's just high net worth individuals,

Starting point is 00:12:59 hedge funds, rogue traders, retail investors. There's just not that much interest in crypto right now. I think it's important to differentiate the kinds of institutions because we talk about institutional adoption, but to your point, that really is crypto native hedge funds or traders who are looking to make money on the asset, but there's no real adoption there from the pensions and endowments and the really large institutions that we're talking about. What you described is sort of another fork, right?

Starting point is 00:13:31 You have things going in the highly regulated direction, like you, who said, I'm going to remain with a centralized exchange or broker, but they're going to be highly regulated. And then we've seen this massive move towards self-custody as well, you know, sales and ledger wallets, coins leaving exchanges. And those people perhaps will go to fully decentralized exchanges and DEXs. But that really doesn't leave much room for unregulated centralized platforms. No, I don't think there will be much room in the next 36 months. They'll be squeezed out of existence. And that's exactly what the regulars want. The institutional hedge fund is a rounding error. These funds are sort of $150, $200 million, which may sound like a lot of money, but it's irrelevant, completely irrelevant. And so what they do or don't do just doesn't matter. What we need is an allocation of

Starting point is 00:14:22 1% to 3% with sovereign wealth and pension. Then you'll start to see price appreciation. One last thought that I've learned through this, we went back and looked at the volatility of our portfolio pre-FTX and now post-FTX. We had 32 positions on pre-FTX collapse. We now have seven and we're getting the exact same volatility with a fraction of the actual number of tickers. So you don't need to own everything to be exposed to crypto volatility, whether you believe it's the upside or downside. And that's the other shoe to drop. 10,000 tokens, most of them worthless. They'll eventually just go to zero because of lack of volatility and lack of volume. They're irrelevant. And so that will also be

Starting point is 00:15:13 flushed out of the market. So all of this crap will be scraped like the patina off rusted iron with a spatula from the sky. And I think it's great great has that been a result of you exiting positions or largely because of what was on ftx and now that's in bankruptcy and it's a question mark because it's like going from 32 to 7 25 coins disappeared yeah exactly they were scraped they were stolen they were transferred they were allocated to who knows where that all all happened, I think, November 10th to all the wallets on FTX. And so in the interim, to bring back our allocation, we simply went into the market and bought new positions in Bitcoin, Polygon, Ethereum, HBAR, just a few, seven positions. And we've noted and we've gone back and tracked because

Starting point is 00:16:05 we mark to market every 24-hour cycle. You don't need any more than seven. You're getting the same volatility. That is a really interesting point because a lot of investors believe they need to diversify. But it's very clear if you're in crypto that diversifying into multiple altcoins is just diversifying to a bunch of correlated assets that are completely rocked with any slight bitcoin movement or news in the market plus they're worthless they're crap that's the best way to look at it just because somebody issues a token and calls it you know it has relevancy what happens is it never has merit because there's no way for it to make money.

Starting point is 00:16:51 The reason Ethereum makes sense or Polygon is there's enough applications there paying the fees so that eventually that platform can be profitable from an economic value point of view. And so you should really think that through when you invest in any of these platforms or these new projects. Who's going to use it? When are they going to use it? And because I think the ability to raise capital now, I get approached every day with the next crypto project. And I always ask these entrepreneurs, what's the game plan? They have no idea.

Starting point is 00:17:20 And all of them were woefully underprepared for prices to go down 80 or 90%. Their treasuries were in their own tokens. That's how they were paying their salaries. This has been, to Warren Buffett's point, we know who's swimming naked, right? Yeah, exactly. It's one of the challenges on the Alameda project portfolio is to figure out how many of these companies actually had FTT or BNB on their balance sheets and were calling that value. Because if I'm a buyer with cash, billion and a half cash, and it's all full

Starting point is 00:17:53 of that crap, then I'm going to have to mark down the value of the company itself. That's a massive challenge. I actually just interviewed the CEO of a company called Xclaim, and they're trading FTX, Voyager, Celsius, BlockFi. It's a marketplace for people to buy and sell claims. And they sort of had the same observation is that what people believe their claim will be is not anywhere close to what it's trading for on the open market because of the time decay of getting paid and because of what you just described. Nobody really knows what's under the hood here. No, that's the problem. There's too much poo-poo in the system, if I can use that word. You can use worse words than poo-poo here if you'd like, openly.

Starting point is 00:18:38 That's a good idea. I'm going to launch a token called Poo-poo. Let's see what we can do. Oh, put a dog face on it and you'll be a billion market cap within a week, unfortunately. But sadly, that's actually probably true and means that maybe we haven't quite learned all of our lessons yet. To qualify that, I'm saying that facetiously. You know that, right? I don't know whether you're saying it facetiously, but I'm saying that if you did it, it would probably work. And that would be yet another one of those pieces of crap that you're talking about that would eventually have to get flushed out. Yeah. And I mean, I just think, call it what it is. Poo-poo. That's it. Anyways, I mean, to me, it's a great opportunity to flush

Starting point is 00:19:19 out the garbage. And I think we're going to get there to your point. I mean, it's a very good inflection point to grow something of value out of this whole mess. So BNB obviously is of concern to you. Do you have an expectation or a fear that that could be the next large collapse finance? I mean, there's been a lot of conjecture around that. You could also argue that this has been a massive stress test for them that they've survived. So it could go either way. Yeah. I mean, I don't put any assets on any unregulated exchange, decentralized, centralized. So it's no concern to me. I don't own any of it. I would think whoever the shareholders are of Binance would be concerned about all the regulatory activity like bees humming around a hive right now, not just the US regulators, all the regulators. And so one of the challenges of successfully putting your competitor out of business is

Starting point is 00:20:21 you poke the bear in every geography geography every regulator is looking at this now and i would think um you know the management of binance would be uh would you know be wise to settle with regulators whatever the cost is because there's something of value there if you were properly licensed and you had a very large platform like that there's something of value but no institution is going to touch that platform while every regulator on earth is inquiring on it, if you want to use that word. And so that scrutiny is not going to stop. I think it's only going to heighten as more hearings occur. The rumored next set of hearings is late February, early March in Washington, but not

Starting point is 00:21:06 around the FTX issue or even Binance for that matter. I think it's more about trying to figure out the next steps on regulating digital payment systems. And I think that'll be a good development. I think that's a bipartisan effort, probably around the idea of regulating stable coins in the U.S. domestic market and abroad out of the SEC or whichever regulatory body takes that. Payment systems, and I'll give you a good example of why I think there's a lot of pressure to move in this direction. Let's just take the SWIFT system.

Starting point is 00:21:42 Let's use a use case. I'm a good example of a use case. I'm a good example of a use case. I'm a huge watch collector. And there's a trend going on. My watch assets, my portfolio have outperformed the S&P for five years in a row now. So I try and keep telling my wife as I come home with another piece is this is all about investing. She knows. Totally. You would never sell them but whatever i would never but but the point the point is let's talk about the challenges uh there there's a new generation of watchmakers a very famous case of a french national named fp joran who started 22 years ago and his watches have become he's a living picasso

Starting point is 00:22:23 watchmaker you've got four thousand% appreciation on the early pieces. Many of them trade that you bought for 17,000 in 1920, or in 2020 for $17,000. They're trading for 1.2 million now. And so he only makes 800 watches a year. So everybody in the watch community, in the hardcore collector community, it's a global community, we all know each other, is looking for the next FP Journe. And along comes this young Frenchman who does the same thing and moves to Geneva, in the canton de Genève, to set up shop. Simon Briel is his name. And he comes forward with a dial design no one had ever seen before.

Starting point is 00:23:07 Stunning. Unbelievable. He makes 12 production watches out of white gold and five out of titanium, of which one through five, one, two, and five are staying in his museum. Three and four are being sold. Now, every collector on earth wants three and four because who knows what that'll be worth in 20 years. There'll only be five of them. And if you saw the dial, you've never seen anything like it before. Stunning, unbelievable, creativity beyond words. How do I put my deposit down for number three? Now, I have to go to this. I'm very fortunate. He granted me the right to purchase number three.

Starting point is 00:23:48 And there's another buyer in the United Arab Emirates who got four. We know each other. This is a great honor for me. He knows that I will covet this piece. I will never sell it. But now my problems begin. This is a substantive amount of money. I have to put it into the Swiss system in New York, transfer it in

Starting point is 00:24:06 US dollars to Zurich. Takes three to four days. Who's getting the interest on my money? I'm not. The bank is. They've got my money tied up in their archaic 55-year-old SWIFT transfer system, and I don't get any interest. It arrives in Zurich. I have to transfer it into Swiss francs for Simon. They clip me for 20 basis points. What value did I get out of that? Nothing. I could avoid all of that crap and all of that time by simply transferring a stable coin to Simon's account. If the Swiss regulator would allow it, if the US regulator would allow it, they don't. And that's the competition. Every day there's billions of dollars tied up in the SWIFT transfer system all around the world. And basically the banks are laughing at you as they take your interest and there's nothing

Starting point is 00:25:06 you can do about it. And then one out of 20 times, one out of 30 times, they lose your money, six, seven, eight, nine days. The senators know this. They know there's innovation there. They know there's a path forward. They've got to find a way to let that innovation become an American leadership position. That's what these hearings are going to be about. I agree that stable coins are the killer app for crypto. You know, I've actually talked about that before. They sort of replaced the original ethos of Bitcoin in that regard, which was supposed to be peer-to-peer cash, but obviously is volatile and slow.

Starting point is 00:25:42 That really is the low-hanging fruit for them to regulate immediately. But it begs the question then, will they just heavily scrutinize the USDCs and USDTs of the world? Or is this the path to a central bank digital currency and the stable coins themselves will be left behind? No, the innovation will always be in the private sector. The SWIFT system itself, the ACH transfer was a private innovation decades ago regulated by the regulator today. There's no innovation in government. You shouldn't expect that from them. The idea that the government could maintain a competitive digitization stablecoin, to me, is for an idea. You've got to let the private sector innovate and compete and lead. Great innovation never came out

Starting point is 00:26:26 of the government and so that's what's going to happen in stable coins as well that's my bet so if you're gonna you know i own a little bit of the equity of of circle um it won't be the only one regulated or granted a license but it's it's it's a you know good one to start with there'll be other innovations right now yeah well at least Well, at least the management there wants to be compliant. If they have to become a bank, they will. They've been tied up in this process. And every time there's another bankruptcy, there's another FTX, there's another Genesis,

Starting point is 00:26:56 there's another whatever going bankrupt. It just slows down the whole process. And there's many more bankruptcies to come. This will wash out all the players. We said this earlier, it's inevitable. All of these guys that have no idea how to make money in a regulated environment are all going to zero. Do you think that we will see regulation in 2023? Or would you be surprised to see this sort of kicked down the road? Because I mean, Gensler hasn't shown very much initiative beyond obviously,cing after the fact. Maybe it just becomes the big political issue in 2024 and we don't see the movement. I mean, that would be sort of the

Starting point is 00:27:31 counter trade right now is that we just remain kind of floating here without much information on what's going to happen for the next year. That's probably a 50% probability, but I think there's also a 50% probability a bill gets forwarded whether it gets passed or it gets packaged into another bill, yet to be known. But it would be a very narrow bill and I think it would be around stablecoins. Yeah, I think so too. So is there anything that's exciting you still outside of that as we come to a finish year in the next year? Do you think we'll see any more use cases, any new tech emerging, or do you think that right now we're just waiting for the regulator?

Starting point is 00:28:09 We're waiting for the regulator. I think the shift to excitement has moved to AI now with ChatGPT and OpenAI. That $29 billion valuation in the Microsoft transaction, that's interesting. There's no question that's a game changer, a Google killer, perhaps, nobody knows. Announcements out of China with other initiatives. This seems to be the new direction. And I think it'll take, you know, you have to wait and see. There's a lot of conferences that are being delayed or even canceled in crypto. There's not that much interest for institutions to come back to Miami to talk about Bitcoin

Starting point is 00:28:45 anymore, because there's nothing to do there. And so I think we'll have a flat period here. And most of the excitement is around AI. So maybe the next wave will be the integration of AI with crypto, which I know is getting a lot of people excited. So hopefully not on PooPooCoin. Yeah, exactly. Well, thank you so much, Kevin.

Starting point is 00:29:06 I really appreciate it. Where can everybody follow you after this conversation? Well, Kevin O'Leary TV. I would say one other topic that we didn't cover. It's a program I discovered recently. The Employment Retention Credit. I'm not sure if you're aware of it for small business, but I'm going to be applying in all of my business portfolios, all the Shark Tank companies and

Starting point is 00:29:31 everything else. This program was set up after PPP and nobody used it because it was so complex to file for. But if you're a small business and you have more than five employees, this program is going to go away in 26 months. So it was awarded billions of dollars. It's sitting in the IRS. I discovered it recently and I went through the process of filing for it and I realized how difficult it was. So I'm setting up the Wonder Trust. You'll see it soon, wondertrust.com, where people can go and take advantage of the group I've assembled to actually process the returns because it's really complicated. I'm putting all my companies through it, but up to $10,000 per employee, if you file and then you wait about 90 days. Fortunately,

Starting point is 00:30:19 you need really good payroll records, but this is something next time we get together with, I should have fully operational. I'm pretty excited about it. I would love to hear more about that down the road. I've literally never heard of that. Obviously, PPP was all the rage. Yes, yes, it was. But next time we get together, we can get in detail about it. Perfect. I can't wait to hear about that. Kevin, thank you so much for your time. Always a pleasure. Take care. Bye-bye.

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The Wolf Of All Streets - Every Unregulated Token Will Go To Zero | Kevin O’Leary

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