Jan 11, 2024

O'Leary Ventures chairman, Kevin O'Leary joins "First Mover" to discuss the significance of spot bitcoin ETFs winning SEC approval.

Video transcript

For more on the market's action. Let's bring in o'leary Ventures, Chairman Kevin o'leary Kevin. Happy New Year. Thank you very much. I got to get your reaction right off the top Bitcoin up 6%. But Ether rallying even more as people anticipate a spot. Ether ETF, how are you feeling this morning? How are you, how are you looking at prices? Well, I this will obviously broaden the base but I think for investors, um we're all starting to think about what's next because a, a spot, it would be great. But it's more than that. The question becomes now and this is the million dollar billion dollar question, whatever you wanna call it, will this trigger the adoption of allocation for sovereign wealth and pension? In other words, the reason if you were the Norway pension fund that you didn't hold any Bitcoin, let's stay on Bitcoin for a second. Was that the SEC had not allowed it to become an institutional product for, you know, people have been debating this for 10 years, but now that you have a spot price so you can buy this thing in the form of an equity in an ETF in, in almost 13 different ways. Does that allow you as the Norway pension or the Abu Dhabi or the Dubai Fund that has never held it to put on a half of her cent or one or 1.5% waiting, which would be a tremendous boom to what the price appreciation could look like over the next two years. And, and my guess is, yes, that's going to happen. It's gonna happen slowly, not overnight. But then the question becomes, where are they going to hold it? Because no, I would never buy an ETF for Bitcoin. Why would I pay 21 basis points of fees? That's pointless. But if it's adopted by the regulator that lets me go to an exchange to buy it and I could hold it as a 1% waiting on an exchange. Now you continue with this line of thought. You start asking yourself. OK, what exchange would they put it on? You can't put it on Binance because the, the equity ownership there is now held by a, unfortunately a, uh, a us felon. And so that's gonna have compliance problems with your own compliance department. You can't put it on Coinbase because they're in litigation with the SEC, even though they've allowed for a spot product. So who's next? W where does all of that money go close to a trillion dollars? Well, that looks like it's going to be M two which has just been launched last November in Abu Dhabi. So for me as an investor who invests in exchanges, I own the Canadian Exchanges. I'm, I, I went out of my way to buy a piece of M two through a company called Phoenix Technologies. That's where it gets really interesting. And I, I think that's the kind of narrative we're gonna have what happens next. The last time we spoke, you hadn't had any interest in M two. Now, you've just told me that you've bought a piece of M two. why? And did you do the proper due diligence this time? Last time we were speaking, we talked about FTX, talk to us about M two. And what's going on in Abu Dhabi? Why? It's so interesting to you? Yes, you're right. I'm tireless in pursuing these exchanges. It's like the way I look at it is if I could have bought a piece of the New York Stock Exchange hundreds of years ago, would I would, I've liked to have done that or NASDAQ or the CBOE? Of course. So M two is different. It's actually, if you look at the ownership of it, you can't buy M two directly. It's 30% owned by a company called Phoenix, which happens to be one of the world's largest Bitcoin Miners, a company in Abu Dhabi that just went public on the AD X. That's how I got my ownership of M two. I bought a piece of the IP O of Phoenix, the stocks up over 30% since November, but the rest of it's owned by sovereign wealth. All right, let's get back to the news of the morning 11 spot. Bitcoin ETF issuers have been approved a year from now. Who do you think survives this race if you look at other, you know, I've been in the ETF market for years with those shares. Um, and so when you look at asset classes in ETF S, you usually end up with two or three that survive. Um It's going to be a war. The, the these ETF S are now commodities. So it's all about fees and tracking errors. So maybe two of them survive, maybe three. But you can bet their sales forces are making calls like crazy trying to gather assets. And if you're in gray scale, they're probably gonna have a lot of redemptions today because you own that thing at a 2030 40% discount to NAV. And now you're at par, you can finally get out at par and you probably have great appreciation. So they'll be bleeding assets and, and others will be trying to gather those because Greys Dale still has really high fees. And so it's gonna be really interesting to watch the movement. Um And then people will start to track tracking error and see which of the platforms does the better job. They're all claiming some unique attribute, but of course, they don't have anything different from each other. They're basically all the same thing and what may differentiate them is fees, but it's who can gather the assets that's gonna determine who survived. The Canadians have two of them and they also have a spot on Ethereum and they've been around for years. And so you can, you now know which one has more tracking or than the other. And if you want to use that you're probably not an institution. But what I love about it is this probably gets legislators because for all of us in the crypto markets, I think next is going to be something around stablecoins. How can we get digital payment system is systems advanced around the world because we need that too. And so you, you're gonna start to see a lot, a lot of legislators talking about crypto. Now that this first move has been made, there's the small business hearings next week on the 18th in Washington DC. I'll be testifying there. We'll be talking about this. I I think there's a lot of good things that happen from this in terms of advancing the cause of regu regulation because we need more than just a Bitcoin ETF we really need to talk about stablecoins and digital payment systems and other platforms on Blockchain that can provide innovation for our economy and reduce fees and better transparency and better auditability and all the things you get with Blockchain. So that's next what, two or three asset managers do you think are gonna survive? I know you said 2 to 3 will. But, and do you see any front runners? I don't think we have a front runner this morning. I think what will happen is, um, it, the, the team with the best sales force. So I, I wouldn't count, uh, Black Rock and Fidelity out. They're gonna work very hard to gather assets here and they have sort of middle of the pack fee structures. Um The rest, I'm not so sure because the way you would look at this is in 36 months is when someone gets the 5 billion of a um that's a fund that's going to survive because they're gonna have to spend a lot of money marketing it. And if you're pulling out 21 basis points, if you get over a billion, you start to become profitable. And so this is really about a race to gather a um and if you have an institutional base of sales force like you have in a Fidelity or Black Rock, you should be able to do this. But in terms of what these differentiates these products, there's nothing, I mean to be fair, they're all talking their book, but there's absolutely no differentiation. The, the asset Bitcoin is Bitcoin. So un unless they have some institutional dysfunction around tracking error, which I don't see why they would. Um it's gonna be very, very difficult to claim that you're better than another ETF so you have to look at, at institutional history and I would say in gathering assets, there's nobody better than Fidelity. And Blackrock Kevin back in October, we spoke and you said that there isn't any institutional interest in Bitcoin and that institutions aren't gonna wanna own it while Gary Gensler is, and this is a quote suing everybody. What do you, what do you think changed and, and has your perspective changed along the way? I know there's a few months in between October and now yes, it has. We finally have Gensler permitting these products which have been tied up for 10 years. And I went to the hearings and listened to him discuss this and there was, you know, it wasn't 100% that he would do this. There was no guaranteed time frame for this. The gray scale lawsuit helped obviously change his mind and everybody's just speculating. But does this move the needle in terms of getting institutions more towards owning Bitcoin? The answer is yes. And the question becomes, where are they going to own it? They don't need an ETF to own Bitcoin. So that's why I'm making my guess. My investment thesis is ownership of M two. To me, that's the safest platform in the world to own Bitcoin. That's an opinion. But you know, I've been saying I would, I wanna own the picks and shovels of crypto and that, that those are the regulated exchanges. So where are the regulated exchanges, you can find them in Canada, you can find them. Now, in Abu Dhabi Kevin, wouldn't you say the regulator is giving a nod to Bitcoin by approving the ETF, though? No, not specifically, they're allowing you to own it in a product that gives you spot pricing. And so I, if they didn't, if they weren't, you know, they wouldn't do this if they absolutely didn't want retail investors to own Bitcoin, they own a derivative of Bitcoin. They own an ETF that trades off the sparse price. It's an important step forward and that's my whole point. And it, and my guess is this morning at the compliance desks of the world's largest sovereign wealth funds, they are having a narrative about being allowed to own Bitcoin. And so my guess is over the next 2 to 3 years, 36 months, you will start to see sovereign wealth allocate 50 basis points to 3% on the topic of price. I have to get your opinion on this. Kathy Wood said this morning quote. Our base case is the $600,000 range. We think the probability of the bull case has increased with the sec approval. This is a green light. Our bull case is 1.5 million by 2030 quote, what do you think of Cathy's comments there? Well, she's always been an advocate for Bitcoin and for crypto and Blockchain at that. Um I don't think that kind of speculation is, is possible. In other words, you know, to actually peg a price um of, of that kind of appreciation would mean that the American economy collapsed in my view. So that is not a good, a good speculation. Bitcoin is an old, is a hedge against um the world's economy. If you want to look at it that way, that's how some people look at it. I certainly own a waiting in it for that reason as I do gold. But for Bitcoin to appreciate that quickly to that price would mean that the US economy had somehow faltered in my view. And so, no, I don't agree with that price point. What's your price point by 2030? I'm thinking we revisit um you know, 100 and 50 to somewhere in the 150 to 250,000 range. The question really becomes this if I own a 5% weighting in Bitcoin, which is kind of the max I can own within the rules of, of how we manage money, uh We can't put any more than 20% in any one sector and then no more than 5% in any one name. And Bitcoin is essentially is a name, we can own 5% gold. Will it beat other indices? Will it beat the S and P 500? Will it beat Russell 2000? Will it beat gold? What other assets can I own that will do better or worse than Bitcoin. And so, you know, for this last year, one of my best performing assets was the crypto portfolio. It went through the debacle of FTX and obviously what's happened to Binance, those are sideshows, the crypto the day of the crypto cowboy. I've said this multiple times is over and institutions are interested in, in working with it on a compliant basis. So my guess is that and, and I'm, I'm betting on this that, that Bitcoin over the next five years. And I don't really try and guess prices past five years will keep pace and do better than the S and P 500. And, and I would also hazard to say that digital and, and crypto will end up being the 12th sector of the S and P 500. And the reason I'd say that is the efficiencies that provides the other 11 sectors. It, it's pretty material. So if you could actually do international settlements on, on a, on a stable coin, that would be far more efficient and faster and lower cost than using, uh you know, the, the fed wire or uh any kind of ach transfer, uh W which are just, you know, 60 year old technologies which are really inefficient. So, you know, II I think that's why you may want to own some other assets in crypto. And we certainly do my positions all have merit for different reasons. Polygon has merit H bar has merit. Um So I understand why Solana has it. You mentioned some layer one and layer two tokens Matic Solana. Uh What's been your top performer to date if we remove Bitcoin and Ether from the equation H bar been phenomenal. Absolutely phenomenal. And, and uh af after that polygon, but it's probably the rising tide of optimism around what's occurring on Bitcoin and in every portfolio institutionally, my guess would be because I have this narrative all all day long with people building portfolios is that Bitcoin should be the lead asset because it's the most liquid and most desired uh potentially by institutions. But you can fill in around the edges based on your beliefs of what the merit would be for a polygon or an H bar or, you know, uh salon or whatever. I mean, it's sort of, it's at, at one point we had 23 different positions on and unfortunately, they were held some of them on on FTX, which is still in litigation as you know, but that e even that is going to be resolved at some point. So I I just think the, the, the, the tone I think what you're asking and it's the right question to ask is has the narrative changed this morning or last night when this finally got approved a few minutes after four? Yes, it has. Um It's woken up institutions and that to me is very, very interesting and the derivative is what else do I wanna own now, that institutions are interested, what do I want to do? And that is what's on my mind. And we certainly had that discussion yesterday. We were as a group talking about what positions we were gonna put on in, in the funds that we manage. And so, um, it, it's a new dawn and you've heard many, many people say that today all around the world and it's important, but we are in the first inning of approving digital payment systems, which is next. I mean, I wanna see the Stablecoin Act moved through Congress. I really, really want to see that. And I will say that when I get down there next week and testify on these topics. I mean, this is really something we've got, we've got to innovate and, and Blockchain and crypto and digital payment systems are the next thing. And so I'm, I'm optimistic we can get there over the next call. It 2436 months. This is the beginning of something good on the topic of stablecoins. Just before we started this recording, uh circle announced that they have filed for IP O in the United States. So we'll be watching that closely. But just before we wrap Kevin, I have to ask you as a shark. You have an eye for good business, good innovation. What do you think the crypto narrative is gonna be uh in 2024? What kind of projects do you think are gonna dominate the narrative. Well, I, I should disclose my interest in Circle and US DC. I'm, I'm an equity shareholder in Circle itself and I use uh us DC as a tool. I I uh my, my personal agenda is to advance the discussion on getting some of these stable coins uh made legitimate as payment systems. And that's what I want. That's what I think the narrative because remember that's not a speculative asset, stable coins backed by the US dollar would be uh a global standard and would allow me to do business in places like Abu Dhabi and Zurich far more efficiently and transparently and come on a compliant basis and reduce my cost. So I, I have a self interest. I'm, you know, I'm a shareholder in the platform. It's been delayed for a long time. Uh It obviously got caught up in, in uh in what happened with FTX and B but those days are behind us. And so I, I would really like to advance the narrative on stable coins and, and I, and I say let everybody compete. I mean, if you can do a better job in the circle, do a better job, I happen to choose that one and I made a decision on an equity basis to support it. But it doesn't mean it's the only answer. But if we can get regulation that says here's how you manage a stable coin back by the US dollar. Here's what the regulator would allow, that would be really good. And, and I think it's very easy to understand that if you're a lawmaker, it's not a complicated narrative. It's not something, I mean, you know, when, when you talk about having a money market fund, it's almost akin to that. And so we would like, many of us in the industry would like to see that happen next. Kevin. Thank you so much for taking the time to join markets daily this morning. Take care. Thank you very much. That was o'leary Avengers, Chairman Kevin o'leary. That's it for today's show.

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