Oct 3, 2023

Sam Bankman-Fried's criminal trial is kicking off today, as the FTX founder faces charges that include securities fraud, wire fraud, and conspiracy to launder money.

Video transcript

The state of crypto is presented by Tron connecting the world to the power of Cryptocurrency. Good morning and welcome back to first mover. The most anticipated trial in the crypto industry begins today, Sam Bakeman Fried faces seven counts related to fraud and conspiracy. Our next guest, New Bakeman Fried personally invested in FTX and was a paid spokesperson for the failed exchange. Joining us now is o'leary Ventures, Chairman Kevin o'leary, also known as Mr. Wonderful. Welcome back to the show, Kevin. Great to be here. Thank you. All right, we got to talk about how you're feeling this morning. It's been reported you lost under 15, just under $15 million when FTX collapsed. You of course, knew Sam personally. How are you feeling as this trial begins? Well, you know, I, I, I've, I always remind people to think about what FTX was a year ago two years ago and in, in context of investing, I mean, FTX was a startup, a nascent startup company and a nascent industry with a lot of potential, just like every venture deal that we invest in. If you're a venture capitalist. And on the cap table of FTX, let's not forget we had Softbank, we had all kinds of storied venture capitalists like Sequoia and on down. And so was I there as well? And we are very hopeful that this would be the first licensed American Exchange. That was the premise by which it was worth over $30 billion. Now, when you invest in venture capital and I remind everybody this on the morning of his trial, if you look back since 1954 every sector out of 10 deals, eight fail and two give you 30,000 30,000% on your money. Now, we are all hopeful that FTX would be one of those winners, but it was not. And why do they fail? Why wide range of reasons in this case, alleged fraud. But it doesn't change anything in how I invest. Yes, I hate losing 15 million plus dollars. But again, it just doesn't change the metrics of venture capital. And so the real question about this trial is what happens next because if you take stock in the crypto industry today, and I think all of us should think about this. We're at the thinnest trading voles of Bitcoin in almost a decade. There's so much institutional demand but no buying potential yet because we're stymied in regulatory hell and nobody is moving forward anywhere until all of these issues are put aside as evidenced by the Gensler testimony last week. And I went to the hill to listen to him. So we've got a long way to go, but the market's already baked in this trial. You know, you talk about VC. There's been so much discussion over the past year about VC and VC is doing their due diligence when it came to investing in F TX. Any regrets you have looking back. No, I know you've got to remember that this deal at its time. And I think about the equity in FX US and FTX International, of which I became a shareholder. When I was approached by a peg spokesperson by Sam and his team, they said we'd like to, you know, buy your services to talk about this product and this platform, I said, I don't do that. I only speak about things I own and I use. So if you can't sell me a piece of FTX, let me be a shelter. We can't do business and somehow they found a way to open that round up for me after it was closed. And after all the diligence was done. But when I looked at the cap table and bain capital involved in all of these companies and believe me, we all look stupid today, but we've seen this movie before. It's not going to change the way we invest. But the point was the promise of crypto still remains. It's still there. Digital payment systems. The promise of Bitcoin to restore value in itself is still there and to retain value is a digital gold. Still there, institutional interest. Still there nothing things change because of FTX and finance is on its way out too. But all the crypto cowboys that were the founders of this industry, they're all going to be gone soon. The C and the Samba Fre, they will, they were great pioneers, but now they just have arrows in their backs and we'll look at the new generation of leaders even coin based. Think about it going into its fourth round of litigation with the SEC. They've lost the last three. Now, they can't become the platform for exchange for ETF S because you know, Black Rock and Fidelity can't launch an ETF because they were planning to use coin base. They can't because they're being sued by regulators. I keep looking at this as an investor with the promise. What's next? Where is the next exchange that's compliant, backed by capital, totally transparent on ownership that the the institutional market wants? Where is it going to emerge? Is it going to be Zurich? Is it going to be New York? Is it going to be London? Is it going to be Singapore or maybe? And this is what I'm so intrigued about. Is it going to Abu Dhabi? You know, they haven't announced it yet, but I know with certainty there's a new exchange coming there called M two backed by billions of dollars, a global franchise, totally transparent on its ownership and 100% compliant with its regulator, the AD GM and the offloading and on boarding of capital from one of the world's largest banks. Now, if that's coming, I'll invest in that. It's the next thing it's going to take, probably sweep all of B's accounts because no institution is gonna put money on that as it goes to zero. What's next is what everybody should be asking about. Except II, I kind of wanna, I, I, I'm sorry, I, I just wanna go into this thing about the cap table because you brought it up is wasn't the problem though that everybody was just assuming whoever was on the cap. In other words, it was sort of like a snowball effect. Everyone just assumed somebody else did the due diligence. They figured some, they outsourced their, their assumptions here. Their assumption was that they could outsource the due diligence on this company. We, I don't have the resources as a personal a as an individual investor, but Bain has the resources. Uh you know, Sequoia has the resources but, but Sequoia is looking at this at, well, you know what Bain already did. It, Bain is looking at, well, Sequoia already did it isn't that kind of the how this was able to happen that all these big investors, the smartest people were told in the room went in and put all their money and, and they put their money assuming that everybody else did their due diligence when no one did it, isn't that? And, and you know, now you're talking about another exchange. I'm gonna have to ask, did you do the due diligence on that one to say that this is the next thing? Because, hey, listen, this, this is uh you know what we learned about crypto is that there is a lot of fuddy duddy stuff going around here and it seems like nobody still is doing due diligence. That's not true. There was diligence done on FX. You've got to remember in large cap deals. In fact, this happens with many, many venture deals. The lead who is actually pricing the deal usually starts with the due diligence, you still have the right to do your own. But at some point as you go down the cap table of any deal, you've just described pretty well venture capital since 19 fifties, whoever is leading the deal generally has done the work and they will often bring in a consultant like Bain and others. But you've got to remember 80% of the time these things fail for a wide range of reasons. It doesn't have to be alleged fraud. It can be market conditions, bad leadership, product failure or whatever it is. And so eight out of 10 fail, but it doesn't change the investment metric. What was missing in FTX, which the promise was when you talk about other exchanges internationally, whichever market is going to emerge is will the government be involved? No one's going to do an exchange again or invest in an exchange where the government regulator isn't there from the beginning. That's the whole point. The whole idea with FX was it looked promising that an American founder with really interesting parents came out of compliance law would eventually get a regulated ticket. That was the golden goose prize of any exchange in America. Everybody tried, bin tried coin base is trying, everybody wants the regulator to regulate them so they can interact and fit into the existing financial system. Well, that has not worked in America yet for a wide range of reasons and now no institution wants to put their money into it. If a new market emerges. And I suggesting it may be in Abu Dhabi, it will start and be birthed and from the beginning be a government regulated agency. I'm not investing in an exchange ever again. That isn't managed by the government that its som as in with 100% transparency on ownership and where I can see the cap table and how it's backed. And of course, in Abu Dhabi, the new capital of capital, there's billions of dollars to support it. So if that emerges, if it happens, yes, I'll be interested in investing, Kevin. You've mentioned them too. Um, a couple of times this week, you've said it's not been announced. How do you know about it? Are you going to invest in it? Have you already invested? Have not invested I travel the world constantly. I have been involved in crypto for quite a while. I'm a big believer in the promise of digital currencies and Bitcoin. And I'm just trying to find a way where I can invest on a compliant basis because my my demand for it and I'm speaking on behalf of many institutions, you ask yourself, why does does Bitcoin stuck between 25 and $30,000 in perpetuity right now? Zero institutional purchase? Why is it thinly traded with zero volumes? Zero institutional demand? Why zero compliance? Give me a platform where the government isn't chasing you around right now. The biggest exchange and shrinking very quickly is finance. Why? Who knows where CSI is? Look at all these charges against him and his platform. What institution wants to get involved in that no institutions. And my whole point is the majority of the world's capital, even if we had a 1% allocation to Bitcoin on sovereign wealth, that would be half a trillion dollars worth demand. You want to see Bitcoin appreciate in value. It has to be on a compliant exchange regulated and approved by the regulator in its jurisdiction. Now. Is that going to be in the US? Doesn't look like it. Where is it going to be? You show me would it be London? I just gave you a list of jurisdictions that are moving compliance forward. I just happen to think right now. Where is the fastest emerging capital of capital. It's Abu Dhabi. I'm I am on my way there this afternoon to the region. I'm visiting with a whole bunch of other dignitaries. I'm starting in Qatar now. Do you know why? Because the amount of institutional capital there is growing immensely. And one of the categories and sectors they're interested in is crypto. I want to be part of that narrative and yes, I want to be an investor. I am not an investor yet. I haven't been invited to invest, but I'm going to go plea my case. I'm a huge believer that when we get this global exchange, it will have tremendous value because it will be regulated. And I keep saying the word regulated, regulated, regulated. Isn't everybody getting bored of the situation we have here domestically, everybody is being sued into oblivion. We just want to get one more question. Also, I think c would agree with you because my understanding is that he spends much of his time in Dubai. So it seems like you're both looking at the same region. Um But quickly and finally, you know, one of the problems with FTX is that, you know, there was just so like everybody sort of bought into it, right? Like nobody really questioned Sam, this was true, as we mentioned before across BC, across like the average crypto investor. Do you think people have really learned from this or do you just think they'll just be like the next one and everyone will kind of like jump on the FOMO ship again. I actually think the market's baked in the whole FT X thing. It's been out there for over a year pretty well. Everybody knows what happened. This Behemoth contest between C and Sam Bagman free. You have to hand it to c he won. He basically bankrupted FTX with that jam down of 550 million in F TT Tokens that week in November. Everybody knows that story. And now the recovery phase is starting allegedly over 7 billion recovered. But who knows yet? And all this litigation that's floating around, but C's victory was short lived, wasn't long before he was slammed with all kinds of litigation from the government and that is never good for institutions. And so at the end of the day, where can you find something clean born as a virgin without any complaints from any government that is 100% compliant or you can put in institutional capital? Where is it going to be? That's what everybody should be asking because I don't think Bitcoin is going away. I don't think digital currency are going away. I don't think digital payment systems are going away. It's just where will the leadership emerge? You say that you say that it's baked into the cake, it's baked into the cake right now. Is that also too? Why we have low volumes? I mean, you talk about, you talk about uh M two M three, whatever it is being, uh, regulated and, and everything is cool with that. I mean, horse and buggies are regulated too, but if there's no volume in it, what, what's the, what's the, uh, attraction to investing in it? Ok. So here's why you should consider Bitcoin as an investment. The reason there's no volume and it's become in incredibly, uh, you know, range bound 25 to 30,000 is there is, you know, people talk about there's great institutional interest in Bitcoin. No, there isn't, they don't own any of it and they're not going to own it while Ginzler is suing everybody. And why is there no Bitcoin spot with the underlying being Bitcoin itself? Because there's nowhere to put it in America. You can't, what exchange could you put it on you? You're going to use coin base. You can't, you can't put an ETF on an exchange being sued by the regulator. That's never going to happen. That's why there is no Black rock. There is no fidelity, the ETF and everybody is so optimistic it's coming. No, it isn't. It's not going anywhere until all of this is cleaned up. And so the reason there's no volume, the reason there's no interest is there is no institutional demand anywhere in the world. If you're running an institutional platform, you have to be compliant with your later every day. And the compliance officer, you have to mark to market your positions every day. And if the compliance officer and the regulator in your jurisdiction says you can't own Bitcoin, you don't even think about it. You don't even care. Is there demand if it was regulated? Yes. All right. 5%. We are. We have to go so sorry. But you know, we got, we gotta wrap it up there. Kevin. Thank you so much.

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