#1034 Kevin O’Leary On Why Crypto Regulation Is Coming Fast

Kevin O'Leary a.k.a. "Mr. Wonderful" is the Host of "Shark Tank" and is the Chairman of O’Shares and Beanstox. In this conversation, we talk about Bitcoin moving to nuclear power, the collapse of the Crypto markets, Crypto regulation, what the Fed and current administration got wrong about the economy, and why we have not hit the market bottom yet. ======================= Bullish is a powerful new exchange for digital assets that offers deep liquidity, automated market making, and industry-leading security. Combining the innovations of DeFi with the regulated environment of traditional finance, Bullish empowers users to trade with certainty and earn passively at scale across variable market conditions, in an environment backed by multibillion-dollar liquidity contributions from the Bullish Treasury. Visit bullish.com/pomp today to learn more. Note: Bullish is licensed by the Gibraltar Financial Services Commission. Virtual assets and related products are high risk. Consult your investment advisor and trade responsibly. Bullish is available in select locations only and not to U. S persons. Visit bullish.com/legal for important information and risk warnings. ======================= Since 2018 Copper has been at the forefront of institutional digital asset development. From award winning custody solutions, to creating the first truly off-exchange settlement function, Copper pioneers technology, products, and services, in lock-step with a rapidly changing world. No other infrastructure provider covers as many assets, across as many exchanges, with the speed and security that Copper can offer. To learn how Copper helps the world’s largest institutional investors secure their digital assets, head over to copper.co Copper - the unfair advantage. ======================= Coinchange is an automated wealth management platform that earns daily compounded yield for you. Earn up to 10% APY on a risk-mitigated basis – your payout doesn’t depend on the volatility of the market and there are no lockups or minimums. Register now at coinchange.io/pomp and get a welcome bonus of 40 USDC when you fund your account. =======================

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:02Anthony Pompliano?

  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 central limit order book with the automated market making. Powered by deep Bullish liquidity pools backed

• 0:47Anthony Pompliano?

  by the multi-billion dollar Bullish treasury. So you can trade with certainty and at scale across variable market conditions. You can learn more at bullish.com or follow Bullish on Twitter. Because the future belongs to the Bullish. Now this is not investment advice. Digital assets and cryptocurrencies are high-risk products. Consult your professional advisor before dealing in them. Bullish's services are available in select locations only and not to U.S. persons. Visit bullish.com/legal for important information and risk warnings. Go check them out at bullish.com or follow at Bullish on Twitter. Today's episode is brought to you by Copper. Since 2018, Copper has been at the forefront of institutional digital asset development. From award-winning custody solutions to creating

• 1:29Anthony Pompliano?

  the first truly off-exchange settlement function, Copper pioneers technology, products, and services in lockstep with a rapidly changing world. No other infrastructure provider covers as many assets across as many exchanges with the speed and security that Copper can offer. To learn how Copper helps the world's largest institutional investors secure their digital assets, head over to copper.co. Again, Copper, the unfair advantage. Check them out at copper.co today. This episode is brought to you by CoinChange. CoinChange is an automated wealth management platform that earns daily compounded yield for you. They've got sophisticated algorithms that automatically analyze and allocate liquidity. To more than 25 DeFi protocols where you can earn very high rates of return on a risk

• 2:14Anthony Pompliano?

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• 2:48Speaker 01

  Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are surely their opinions and do not reflect the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement 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.

• 3:12Anthony Pompliano?

  Mr. O'Leary, how are you, my friend?

• 3:14Speaker 02

  Great to be here. Thank you so much.

• 3:16Anthony Pompliano?

  Of course. How are you?

• 3:18Speaker 02

  Well, I'm crispy around the edges.

• 3:22Anthony Pompliano?

  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?

• 3:40Speaker 02

  Well, you remember, this, 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

• 4:20Speaker 02

  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 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 add, actually, if you're using carbon credits or offsets, we're going to have you sign that too. And basically

• 5:02Speaker 02

  what the SEC was saying is they were calling BS on carbon credits. So many companies said, look, yeah, I'm using coal or 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.

• 5:43Speaker 02

  And wow, were they dumping stock. So, I mean, they read the writing on the wall. A lot of these companies are going to face bankruptcy because they levered their Bitcoin mining, borrowed money to, you know, build more facilities and they're offside 50, 60% 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.

• 6:27Speaker 02

  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 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, and they say it's blended. They don't know, basically.

• 7:10Speaker 02

  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 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%, not coming back. Sorry.

• 7:42Anthony Pompliano?

  Kevin, is it your belief that many Bitcoin miners should go and start using nuclear power to mine Bitcoin?

• 7:48Speaker 02

  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 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.

• 8:32Speaker 02

  In the 50s, they built so much hydroelectricity that over half- If 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 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.

• 9:16Speaker 02

  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.

• 9:40Anthony Pompliano?

  One of the most important, Kevin, one of the most important topics right now in finance 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?

• 10:13Speaker 02

  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. One is inflation on energy. Five to $7 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 US from chicken on down is Between thirty and forty eight 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.

• 10:58Speaker 02

  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 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 Boston Harbor.

• 11:39Speaker 02

  So that's policy mistakes and, you know, takes time to fix that. When Biden goes over to Saudi Arabia to get more oil from them, it won't matter to energy prices in the US 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.

• 12:24Speaker 02

  There's going to be a lot of seats lost in Democratic Party and in a way, they did that to themselves on bad policy. And of course, they're scrambling and anything can 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.

• 12:54Anthony Pompliano?

  Yeah, it's pretty crazy. Speaking of politics, we can talk about regulation. We've seen GBTC and the Grayscale team, they're trying to convert into an ETF. Their most recent application was denied. 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 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?

• 13:31Speaker 02

  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 trying to embarrass the regulator into submission, well, pomp, that

• 14:16Speaker 02

  just doesn't work. And so, this is not the path of least resistance. And I do not want to, you know, comment on what they're attempting to do, other than saying, from my point of view, it's 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, 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

• 14:57Speaker 02

  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, okay? 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. 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 stablecoin. Now, not all stablecoins were created equal. We know the meltdown on Luna, that story's well-known.

• 15:42Speaker 02

  Algorithmic-based, you know, stablecoins 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 US dollars. Imagine if you could use USDC to transfer between jurisdictions and geographies. It's far more efficient, better ledger, more transparent, lower cost, way faster. What senator doesn't like that idea, making the US dollar king dollar?

• 16:27Speaker 02

  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's going to retire in January, he would endorse this if he could get it passed in the last, by the last, at the end of this year. It would be a fantastic thing. 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?

• 17:12Speaker 02

  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. 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 know what is, what isn't.

• 17:56Speaker 02

  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.

• 18:05Anthony Pompliano?

  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?

• 18:24Speaker 02

  There's no question there's gonna have to be more disclosure. There's gonna have to be more transparency. But the truth is, and this is something the entire industry has to really get their head 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 stablecoins got licensed. It would be a phenomenal outcome because you would, for the first time, be able to get a 1% or 2% or 3% indexed allocation

• 19:06Speaker 02

  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. 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

• 19:48Speaker 02

  hands together about disclosure, who cares? Let's get this policy done and if you want, 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, 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.

• 20:21Anthony Pompliano?

  You and I both have on suits and ties right now. This is 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? 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?"

• 20:45Speaker 02

  So people ask me every hour of the day, "Are we at the bottom? Is it time to buy?" 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 decentralized in the sense that the shareholders are all over the place. And it's not really going to hurt anything, but...

• 21:29Speaker 02

  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. So what? It's a great learning experience for them. There'll be much better managers going forward.

• 22:13Speaker 02

  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. 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.

• 22:47Anthony Pompliano?

  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 re-entering a market?

• 23:04Speaker 02

  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 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 and P, then you can cherry pick the top 100, you know, highest quality balance sheets in the S and 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, a fall unemployment, you know, a fall employment, I mean. We don't have, you know, any... This is not your typical recession, I can tell you. 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.

• 23:48Speaker 02

  And we'll have to see where that goes. But in crypto, you get a 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 gotta, you gotta, you know, 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.

• 24:28Speaker 02

  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 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.

• 24:58Anthony Pompliano?

  You got pants on?

• 25:00Speaker 02

  No, no pants on.

• 25:03Anthony Pompliano?

  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?

• 25:10Speaker 02

  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?

• 25:23Anthony Pompliano?

  Are you on TikTok?

• 25:24Speaker 02

  Yeah, you bet. I got hundreds of thousands. I just started. I'm up to 600 and something thousand. So it's really taking off and it's our fastest growing platform. And that content is unique. You have to produce it, as you know.

• 25:35Anthony Pompliano?

  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.

• 25:43Speaker 02

  I'm on TikTok every day. What I try and do is have some fun with all of this, you know, it's you've got to 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 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

• 26:26Speaker 02

  to zero, it's a good thing because that business model, that amount of leverage, that idea does not return anytime soon. And so the market gets better. And so their remaining assets get stronger. And that's, you know, my premise. You can see all the work that Sam Bankman-Fried 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 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 risk mitigation. Some of these other guys forgot about that. And they're learning a very important lesson.

• 27:06Anthony Pompliano?

  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.

• 27:16Speaker 02

  Take care. Bye bye.

• 27:17Anthony Pompliano?

  All right. Later, buddy. Thanks so much for listening to today's episode. I really hope you guys enjoyed this one. Make sure you subscribe 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 pompscryptocourse.com. We've developed a curriculum with the top teams across the industry. It's a three-week intensive training program with over 50 events packed into that three-week time period. Go to pompscryptocourse.com to learn more and I'll meet you guys for the next episode.