122 - Crypto's Bull Shark | Kevin O'Leary (Mr. Wonderful)

Welcome to Bankless, where we explore the frontier of internet money and internet finance. This is how to get better, how to get started, and how to front run the opportunity. This is Ryan Sean Adams. I'm here with David Hoffman, and we're here to help you become more bankless. Guys, this is an incredible episode. We've got uh, maybe I should say it's a wonderful episode, David. We've got Kevin O'Leary, Mr. Wonderful himself, or should we say Mr. Wonder Fi? He is the second shark from the Shark Tank TV series that we've had on, other than Mark Cuban. And actually, we caught him at a time where he is live on the ground in Capitol Hill in Washington, D.C. He's fighting for crypto in Congress, meeting with some legislators over this new crypto legislation that is being proposed by Senator Lumis. So, first on the list, we ask him what is happening in Washington? What's up? What's his perspective on that? But look for some other takeaways as well. Number one, we talk about the bear to bull, Kevin's crypto conversion story, how that transformation occurred. Number two, why crypto natives should actually want good regulation? Number three, what he's invested in. What does Kevin O'Leary's crypto portfolio look like? How much of his net worth is in crypto? We talk about that. And number four, what he thinks will happen next in crypto, 2023, and beyond into the future, how this industry will transform. David, really fun conversation with Mr. Wonderfy. What were some of your thoughts?

I was just really impressed by how sharp Kevin was. Man, he's 67 years old, and that guy is sharp as a tack. And you know that he just loves the game. The game of investing, the game of growing capital. And one of the questions we asked him is as he turned from a crypto skeptic, deeply skeptical of crypto in 2017, to deeply bullish crypto in 2021, how has his allocation towards crypto gone from zero to what it is now? And hearing that story of him just becoming more and more convicted about what crypto has for the world was just really refreshing to see from somebody who's 67 years old, yet again, like knows markets inside and out. And so Mr. Wonderbull has turned into a fantastic evangelist, reaching corners of the capital world that Bankless just doesn't reach yet, TBD. But like he's just doing such a great job evangelizing for our interests, both on Capitol Hill with hedge funds, and just again, corners of the money world that otherwise wouldn't have heard the good word of crypto.

Yeah guys, I think you're really gonna enjoy this episode with Kevin. Like, I'm he's using these D5 protocols. He knows his way around the space, invest in over 32 projects, some of which we are also very excited about. So he's got a good take on the industry as well as he's got a good take on what needs to happen next and how we're going to grow into a $10 trillion industry. So stay tuned for all of that. We're going to get right to the conversation with Kevin O'Leary, Mr. Wonderful. Hey Bankless Nation, we are super excited to introduce you to our next guest. This is Kevin O'Leary, aka, also known as Mr. Wonderful. That's probably what many of you know him as. Although I'm kind of thinking, David, we should start calling him Mr. Wonder Fi because he's doing so much in the DeFi space. But you might know him from the startup competition on TV called Shark Tank. He is a serial entrepreneur, seasoned investor, macro, bond markets, seed investing, and now, more recently, on the frontier of crypto. Kevin, welcome to the show. How are you doing, man?

Very good. Thank you very much.

Hey, so you are in Washington right now. That's why you're all suited up and looking spiffy. What's the conversation in Washington? What are you there to do?

Well, as you know, the Lemus bill has dropped a couple of hours ago. Uh, it's been long awaited. This is a bipartisan effort,

very important. It sets some parameters around whether

you know chains or commodities or securities. It

contemplates uh all kinds of different attributes such as stable coins.

And it's important to get this off the ground. Uh, this dialogue has been sorely needed.

But it's not the only bill. There's also the Haggerty bill, the Tumi bill.

Other initiatives going on. So you've got a lot of policymakers finally addressing this issue

for the first time, basically, knowing that there's a huge institutional demand waiting to get involved when they finally bring policy forward. And I'm just here to be part of it. There's many private citizens involved.

It's important to get to Washington, important to talk to these leaders, important to give your ideas.

They're basically soliciting

the industry, and I think that's important.

Well, Kevin, thank you for being there and representing all of our interests and the good interests of the crypto industry as a whole. I just want to pitch your brain a little bit more about how you are trying to move the needle yourself. You see Cynthia Lemmus and the bill is exactly the kind of legislation that we need to

promote the merits of this crypto industry. I'm wondering what you think that you can help do when you are in Washington and how are you helping move the needle there?

So, you know what I'm suggesting, and I'm just one voice, but I try and say this over and over again to policymakers is let's pick one thing.

I mean, the crypto universe is so broad, it's so huge, there's so many different things going on at the same time. Let's bring policy on one thing and get that done. And what I'd like that to be is stable coins, because as a payment system right now,

It would be very, very productive to bring forward some policy on stable coins and let the market compete. Now, I personally prefer ones that are backed by hard assets like the US dollar, but there's many ideas out there. Some work, some don't. Obviously, what happened with Luna was a bad outcome, but that's okay. This is a naison industry, and we're trying different ideas. But the need for an international payment system is so huge and so such a huge opportunity to save costs, to provide transparency, auditability, liquidity, speed, all of those things. That's what I'm suggesting. Let's pick one thing and bring policy on stable coins. Let's nail that. And then we'll move into Bitcoin, we'll move into blockchain, we'll move into other things, but NFTs, but let's nail one thing.

That would feel good for Congress to kind of nail one thing. It's been largely silent on crypto. Like we've had no clarity in this space. And I'm curious, since you're there in Washington, Kevin, you're kind of plugged into some of these circles. A lot of people in the crypto industry, the crypto natives of the world, are somewhat skeptical of Washington. Like you mentioned Washington or you mentioned Congress, and they just kind of recoil like we don't need governments, sort of thing. We're more on the side of, you know, we want governments to bring forward sensible regulations so that America won't miss out on crypto and they won't miss out on DeFi and all of the innovation, not for the sake of DeFi, but for the sake of the United States. Let me ask the question as you're in Washington, you're looking at the Senator Lummis legislation, some other legislation, are you optimistic that they're going to get it right? Like, do they actually understand crypto this time? What do you make of this bill and similar efforts?

They don't need to get it right. They just need to get it. In other words, we gotta move forward on something here, and I'll tell you why. For all of the people in the crypto universe, and there are many, that don't think we need regulation, let me point something out that would get everybody on board. It's a very simple quantum mathematics, and here's how it works.

The majority of invested capital on Earth is held by sovereign and pension plans, about ninety plus percent of it. They own zero crypto, nothing.

And so for all the excitement about Bitcoin, $800 billion, that is absolutely a giant nothing burger. It is totally irrelevant. It's not held by any institutions that matter. Now, I'm an indexer, and I've talked about this many, many times. There's many indexers in the world, but we service sovereign funds pension plans. Let's say you're an oil-rich country in the Middle East, you're making 250 million cash a day, US dollars, in oil revenues. You don't want to reinvest in oil, you want to invest in every other sector. So they'll go to an indexer like me and say, index of the SP 500, less energy, less airlines. That's the kind of index we do. So we see these fund flows, trillions of dollars of fund flows every year, just going through the system. Indexers see that every 24 hours. And I always ask these institutions and these sovereign funds what allocation would you put into Bitcoin? Just one.

Bitcoin, which is the granddaddy digital asset, everybody knows that. What would you allocate if you could? And they said, well, we can't because our compliance department won't allow it, because the SEC hasn't ruled on it yet, and Larry Fink doesn't like it, and he's our biggest money manager, and all those other reasons, but

They would allocate 50 to 100 basis points. Now, when you're running a trillion dollar mandate or an $800 billion mandate, which is some of the size of these funds, that's a ton of money. And that's a huge amount of demand that would come into the market. And as Bitcoin prices went past that 1% allocation, let's say, they'd sell it back down to 1%. But just importantly, if it dropped below 1%, they'd buy it back up. So there'd be an internal bid forever. The volatility would drop dramatically. There'd be price appreciation in Bitcoin. It would be good for everybody involved in crypto. But we can't do it without policy. And so everybody should just get off this let's be rogue, let's be crypto cowboys. Forget all that crap. It's time to get this real and get a tremendous amount of capital going into crypto because it's policy and it gets regulated and it's good for everybody.

Kevin, you talked to so many people across the whole world, the whole landscape of investors and regulators. And I've been keeping an eye on your trajectory in the crypto space, going from the 2017 skeptic to the 2021 bull.

And I'm wondering, as you are now talking to so many people and as the world becomes piqued by crypto and interested in crypto,

what's your generalized pitch for why crypto is here to stay, why crypto is good, whether you're giving it to a legislator on Capitol Hill or a hedge fund manager with a billion dollars in their portfolio?

Why crypto? Why is crypto good? And what do you have as like a generalized pitch for people?

Because the largest economy on earth is financial services. I think crypto will be the 12th sector of the economy within 10 years, because it adds so much liquidity, so much productivity, so much transparency, so much auditability. It's so much better than what we're doing right now, which is so expensive and so slow. If I want to transfer capital over to Zurich to buy Nestle stock in Swiss francs, it takes me days. And it costs me a fortune, and it's incredibly inefficient. I could do it in two seconds with a stable coin. And I can't yet because we don't have policy on both sides of the ocean that let me do that. But it's coming one day. And I think crypto and blockchain and the services and financial transactions, microtransactions, all of it.

are gonna lend itself to this blockchain auditability, transparency, the ledger system. It all makes sense to me. And I think regulators are starting to figure that out. Now as an investor,

I don't know which of these chains is going to win. Is Solana going to be Polygon? Should I be in Poland? What about, you know, all of the others? Ethereum, of course, the big one right now, but too slow for many financial services. What's going on with, you know, helium and all of these different ideas out there? So my strategy is to do the same thing I do with stocks. Get diversification. I own 32 positions, 32 chain projects, 32 different coins and tokens. I have no idea which ones will win over the next five years, but I don't need them all to win. I just need a few to win. And that's what diversification is all about. And I've made some investments in the infrastructure. You know that old adage in the gold rush? You were better owning and selling picks and shovels and jeans than you were trying to find gold because that was very hard to do. The infrastructure.

Of crypto are companies like FTX, I'm a shareholder. Circle, I'm a shareholder, WonderFi, I'm a shareholder, immunable holdings, I'm a shareholder. I've given money to all of these projects because they make a lot of sense to me and I use them all. And they're centralized, decentralized. There's stable coins in there. There's the FTX platform, which is the first compliant institutional platform I can find that my auditors and my compliance department finally agree to let me use to store value. And those are the kind of things that really matter to me. And I have to disclose yes, I'm a shareholder in FTX. I'm also a paid spokesperson.

So I'm, you know, I'm I'm eating my own cooking, but I'm also talking about the merits of their compliance platform.

Yeah, Kevin. So I'm interested in that comment you just made. I like them and I use them all. All right. So here's the position of so many in Washington, so many of our lawmakers, so many that are kind of outside the crypto space is probably similar to your position in 2017, your pre-conversion position on crypto, which is like, I don't understand this. Like it seems like a bubble. I don't know what your takes were back in 2017, but I know you were bearish, you were negative. Can you talk as somebody who has been converted, who has started to use these products in your everyday life? Can you speak to that skeptic? What do you tell the skeptics in DC or in the finance space or you know the things of the world? What do you tell them about crypto? How do you explain it? How do you convince them?

So I'm an investor. I'm constantly trying to find a way, the path of least resistance to invest my capital, redeploy it.

I have to look around the world for opportunities. I have to be diverse.

And you know, crypto to me, when it was being frowned upon by regulators in a very harsh way, if you recall, 2017 was probably the height of when regulators were clamping down on tokens and different ways to tokenize assets like hotels and everything else back then.

And as a result, I'm so involved in the traditional financial services market where I'm highly regulated and I have to report almost monthly.

to both my internal auditors, compliance department, and external regulators all around the world, that that's the world I'm used to. And I saw no relief coming from regulators. And then what turned me around, what changed me completely, was when the Canadians, the OSC,

granted the very first crypto exchange license attached to a dealer broker.

A compliant platform. It wasn't rogue anymore. They told Canadian citizens you can transfer your cash out of your bank into this centralized wallet and you can trade Ethereum, Bitcoin, and slowly more and more coins were added.

Then they announced in Canada the very first Bitcoin ETF. Then they announced the very first

ETF that was for Ethereum. They were moving forward with policy that was regulated.

And I immediately started investing in that because I saw it coming. I saw the writing on the wall. And I've also made the assumption, this is a personal assumption, that the OSC, the regulator that granted that world order for the first time, a dealer broker, was well in touch with the SEC and other regulators around the world. They talk to each other every day. Maybe Canada was being used as a petri dish or an experiment to try it. And it's been wildly successful. That's when I got involved in WonderFi, became a shareholder there. WonderFi bought Bitbuy, which was the first regulated exchange. And now that company has 800,000 registered, compliant crypto accounts. It's the model for the rest of the world. So I got on a plane, I went to the United Emirates, Switzerland, England, South America, and I started showing these different regulators look what the Canadians are doing. Can we do the same thing here? And that's exactly how I'm spending my time now, trying to open up these new markets with the policies that have been put in place, tested, and proven to work in Canada.

It's always wonderful to see just the well-informed investors of the world with just insane like respect and renownedness from their communities go down the crypto rabbit hole and turn into crypto evangelists. And Kevin, I was watching a podcast you did with our friend Anthony Pompliano, where apparently earlier in your guys' relationship, he said that he had 50% of his portfolio in Bitcoin, and you thought he was absolutely crazy for that. But that was before you really went down the crypto rabbit hole. So I'm wondering over the years, as we've gone into like the 2020 to 2021 bull market, but now into the 2022 bear market, how your portfolio allocation into crypto has changed? Is it been like up only as in more and more crypto exposure over time, or has it gone back and forth as the markets have changed? How has your allocation changed?

You have 50% yet?

50 50% or plus.

No, I've basically what's happened to me is I've been layering in now for 36 months. I started at 2.5%, went to seven, then we went past 15. Now in portfolio theory, if you're running, you know, a mandate such as a sovereign fund, let me give you the rules by which those big boys play. And I'm using the same philosophy for crypto.

We have 11 sectors in the SP 500.

Portfolio theory would tell you never more than 20% in any one sector, never more than 5% in any one stock or bond. That's diversification. And that's basically how 99% of sovereign wealth is managed by indexers like me and many others that are like me. And so I've done the same thing in crypto. I've said, okay, I think crypto will be the 12th sector of the economy in 10 years. I'm going to treat it that way now in the operating company. That means I can put up to 20%.

of our operating capital into the crypto space and then I want diversification. So I've basically done exactly that. My largest holdings right now are Ethereum and Bitcoin. That's not a big surprise, but I also have a big position.

In USDC, big position in FTX as an equity, which is a private company. And then on down, Polygon, I got involved with Sandeep. I liked his story. I met him in Dubai, you know, trying to reduce gas fees on top of Ethereum. Makes a lot of sense for India and other countries like that. Like what he's doing. I bought a piece of that. Love what's going on in the serum projects. Solana, I'm a big fan of what you know, Sam Bankman Fried is doing. These things all make sense to me, but you know, in the proportions of diversification. Now that portfolio, I'd say about eight weeks ago was at 21%. Now it's down at about 18%. There's been a big correction in the market, but you've got to hold your nose and get used to the volatility. And it lets me adjust positions. I can add a little bit to my USDC.

But my compliance department doesn't consider USDC

a money market or a proxy for cash. They consider it a highly volatile equity. That's because of what's been going on in stablecoins. So I'm limited to a 5% weighting there, and I'm trying to get some policy while I'm here in Washington. Remember, we go right back to that. Give me one thing. Just give me policy on stable coins and let the market compete. And I could put a lot more into that space because I've got a lot of cash on my operating company balance sheets, and I have nowhere to put it. And inflation is 6, 7, 8%, and I'm getting 45 basis points in a bank. That's really crazy. I could do a lot more with stable coins.

So that's funny. So you're saying even compliance is treating USDC, which is a stable coin, which is pretty much one to one backed with money in a bank, actual dollars in a bank, you're saying that they're still treating that as a speculative asset. So it's hard to deploy into that.

That's the challenge. That's the challenge. You can't get your compliance department on board because they say, show me the policy. Well, there is no policy. That's the problem. Is it FDIC insured? We don't have that yet. We've really got to get this stuff nailed down. That's why I keep telling everybody get behind policy because you're going to get a whole lot more capital into this space. There's $52 billion already in USDC. Tether's out there. That broke a buck, so I can't touch that. And of course, Luna was insanity. Well, we now know algorithmic based stable coins. Well, they don't work so well, do they? So the market will figure that out.

And they'll basically adjust accordingly based on risk and return.