Yahoo Finance Presents: Investor and Entrepreneur Kevin O'Leary

From Bitcoin 2021 in Miami Yahoo Finance's Zack Guzman sits down with Investor and Entrepreneur Kevin O'Leary to discuss the evolution of cryptocurrency and where O'Leary thinks the future of cryptocurrency is heading.

Video Transcript

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ZACK GUZMAN: We are here with "Shark Tank's" Kevin O'Leary. Kevin, always good to chat here at Bitcoin 2021 in Miami. You obviously live down here. So this wasn't a big trip for you. But I wanted to start the interview with the way that you absolutely nailed the call around sustainability concerns in Bitcoin.

You came on with this at Yahoo Finance at the beginning of May. Elon Musk changes his tune almost immediately after that. So how much has been made to fix that sustainability issue in Bitcoin, and how big is it going to be for the months to come?

KEVIN O'LEARY: You know, it's both a huge problem and a massive opportunity. I prefer to look at the opportunity. So here's the setup. Here's what happened. I work with institutional clients in sovereign funds, pension plans. I'm constantly working with them on a lot of other projects that I'm involved in. I have investments in many, many different financial services companies. So I'm in a constant dialogue with them.

And as the excitement, if you want to call it that, or the noise as Bitcoin was passing through $55,000 $60,000, I started to ask these institutions because I know their allocations. And most of them are 5% weighting in gold, for example. And I'm asking them look, are you going to get crypto? If it is crypto, what are you going to do, and what's the allocation going to be on a mandate basis?

So let's say they're running a billion dollar mandate. That's not uncommon for a sovereign fund. Here's what they said to me over and over and over again. We would love to put a 1% to 3% weighting into Bitcoin. The only one we're interested in is Bitcoin as a property not as a currency. So the same as buying land or building. However, we are now subject to ESG committees and compliance committees that are involved in things like ethics, human rights, all that. And the asset has to get filtered through both compliance and ethics committees then we can allocate.

I said, so what's the problem? They said, huge problem. ESG on Bitcoin. The majority of it is mined using non-sustainable forms of energy primarily coal for many of the miners that started the journey of Bitcoin in 17, 18 years ago.

I had not heard that before. And I started hearing it every day. And I called it out on that Yahoo Finance interview and the proverbial poo poo hit the fan. I took a lot of flak. But it's obviously on the mind of the institutional client.

ZACK GUZMAN: But when it comes to that though, obviously, there are sustainable miners out there. You can use cleaner energies if you want and shift away from coal. And we are seeing that even the way that China's had its mining sector completely changed with regulations over there. So is that enough maybe to change it, and are you seeing the things that you would want to see to fix the solutions now?

KEVIN O'LEARY: I decided to reach out to some of the large holders and say, look, you are aware of this problem. So I called up Tyler Winklevoss, and said, look what do you think? He said, we know this is a problem. We got it. Why don't you give a call to Steve Lee? Let's talk to them. What about Fred over at Coinbase?

So we started to get this dialogue going about how do we solve this problem? Because here's what we're thinking. Yes, it's a problem. But think of the opportunity. If we could blow through the logjam, solve this problem for the institutions, that's a trillion dollars worth of buying power right there.

So if you want to see Bitcoin achieve $100,000, $200,000, $250,000, a million dollars a coin, you've got to have the institutional player. Everybody in this hall today is incentivized to solve this ESG problem, everybody, every single person for that singular reason alone. The question is how.

Now, there are two thought streams on this. One, is to tag coins green, not green. And a lot of people don't like that because then the currency is not fungible if you're trading as a currency. You make one coin you different than another that's a problem.

The other is to somehow decide as an investor you're going to buy a sustainable miner that's using hydro or using solar or maybe an energy source like wind that you can say is completely sustainable. And just buy that miner and hold the coins on the balance sheet in perpetuity, which seems to be of great interest to sovereign funds.

So I'm going in two directions. I'm trying to get a software solution so that we can tag, for example, Hut 8. Jaime has all her coin on a balance sheet, every single coin she's ever mined, all sustainable. Well, she's a sustainable coin even though nobody cared about that two years ago. Why not somehow give an identification to that coin so at least that's sustainable in one way or another?

So the industry is trying to solve the problem. I'm trying to be part of the solution. I'm an investor. But I know with certainty, I cannot own a coin that was not mined sustainable.

ZACK GUZMAN: Have you tapped deals with any sustainable miners out there? Because we talk with Bitfarms, one of those Canadian operations that use hydro power. There's few others that are really focused on it. But are there ones you specifically like?

KEVIN O'LEARY: There are three private miners that I'm in discussions with that are looking for capital to build out wind and solar. Of course, I'm interested in that. And one of them is in West Texas. There is another one in a different geography in a different country, one in Europe.

My strategy there is simply to say, look, OK, what do you need? I'll be an investor. Let's say I end up with a third of the company or something. I want to be paid back in coin. I don't want fiat. I'm an investor. I want a distribution in coin, and I'll know with certainty that that coin was mined sustainably, and I'll never sell it. It'll be just property.

ZACK GUZMAN: That is the tricky thing too, though, because you're right. I mean, it's all fungible so it should be-- it doesn't matter. You can't track it since Bitcoin is Bitcoin. Of course, though, if you're talking about prominence and where the coins coming from and the problems there, we're talking with Tim Draper yesterday and his connection with the Bitcoin that he won through the Silk Road auction from US Marshals. You can say the same thing with cash, right? There's dirty cash, clean cash and it's tough. It's tough to separate.

KEVIN O'LEARY: At the end of the day, there's a new sheriff in town and it's called ESG. Every single institution, including from Larry Fink on down at BlackRock, who put out a ESG letter, his sustainability mandate, this used to be fringe. It's not fringe anymore. You have to be sustainable in terms of how you look at investing or you're going to lose your investor. And someone's going to point a finger at you and say, look, you don't seem to give a damn about sustainability.

I do give a damn. Everything I touched is sustainable investing because the entire employee base that I have, I've probably got 10,000 employees through my supply chain of the companies I own. I bet you 90% of them are under 35 years old and really care about this issue. And if they thought that I wasn't on board with this, they wouldn't be my employees. Everybody that works for me knows that I care about this because I was one of the first graduates of Environmental Studies, the first cohort ever and when people didn't care, I care.

ZACK GUZMAN: Yeah, you were in it before it was a thing. And it clearly has become a thing now. But when we talk about it, it's not just Bitcoin, obviously, we're at a Bitcoin conference. That's mainly what people are chatting about here. But it got a lot of attention on another chains too, Ethereum and some of the other ones that claim to be more sustainable. How big of an impact for some of those is it now that sustainability is a mark, maybe, potentially, arguably, on Bitcoin?

KEVIN O'LEARY: You're making a very important point here. Here's the problem. If I pull 10 sovereign funds and pension plans and ask them which digital asset are you going to allocate a 3% to a 5% weighting in? There's only one. It's Bitcoin. They're not interested in anything else. I'm not saying they won't be, but right now as a property inside a mandate with a 3% or 4% or 5% weighting, it's Bitcoin.

Bitcoin is the digital gold and everything else is underneath it. So that's why we're so incentivized to solve this ESG problem because the amount-- I'm going to hold on to my coin and try and be part of the solution because I know there's only one direction for the value if we solve it, it's up.

ZACK GUZMAN: Last time you were on with us, you said you were allocating 3% of your net worth in Bitcoin. But I'd be curious now you've also made the comparison there that Bitcoin will be digital gold and it won't be surpassed by Ethereum. And you say it's always going to be silver to bitcoin's gold. But now I wonder-- some people are using the analogy that Ethereum might be oil, that it powers some of these DeFi applications.

KEVIN O'LEARY: Yes, it's a good analogy. But there's other solutions. Ethereum may not be fast enough for some of the transactions being contemplated in decentralized finance or in trading. It just may not be the right engine. And so I wouldn't bet the firm on it. There's other ideas out there, but there's only one Bitcoin.

And so I have some Ethereum. It's a small weighting. It's about 75 basis points of the digital portfolio. And it's been as volatile as Bitcoin, but I'm not so sure that it will become the de facto standard for transactions. And so I'm putting out multiple bets here.

ZACK GUZMAN: That being said, let's talk about those bets because there's a lot of excitement around the idea that you can earn yield now on your digital gold, not just in DeFi, but also in centralized applications here like BlockFi, we were chatting with Celsius here. How does that change the game when it comes to getting people on board or even stablecoins when you can earn like 8% on a stable asset? How important does that become in this discussion of shifting to crypto?

KEVIN O'LEARY: Well, it's a huge discussion going on. But primarily, let's say I have a balance sheet and I do, and I'm sitting on cash that's making 22 basis points, which isn't even beating inflation. So I'm watching that asset diminish in value. Let's call inflation 1.7%. So I'm offside 1 and 1/2% a year. I'm losing that value.

So I talked to my team, said, guys, what ideas do you have for this cash? And we need liquidity, all right. We need to have cash. Sometimes we're regulated. We require it for margin, whatever it is, we need it. That's when the DeFi discussion started. And so there's two ways to go there.

People ask me what is DeFi? The best analogy I say is the more volatility Bitcoin has, the more yields you're going to make on DeFi. So you're going to have to sustain the body blows of a 38% up and down on Bitcoin or some tweet comes out and it loses 25%. But if you treat it as property, you don't care.

But right now I'm making between 4.7% and 9.2% on those assets through DeFi. And I can take it out in fiat if I want. I could take it out in stablecoin. I can do whatever I like. So I've started putting bets in, for example, the granddaddy right now if you asked me, what company is servicing the institutional client the best on DeFi? It's got to be Circle.

As you know, they just raised over $400 million. That's the biggest venture investment ever made. The team there, led by the CEO Jamie, they are the smartest guys in this space. And they're very-- what I like about those guys is compliance overrules everything. So when you're going to take your treasury and put it on their balance sheet as they manage your cash through DeFi, you got a very compliant institutional company. So you can show it to your compliance department and say, oh, it's Circle. That's cool. We know who they are. That's the important thing about what Circle is.

On the more decentralized retail side, I found this incredible company up in Vancouver, Canada called Defy Ventures, made a very big investment there. And I'm going to rename it WonderFi and put it into my portfolio of companies and work with Ben, the CEO there, to build a retail version so that people-- because the hardest thing is a lot of people don't know how to set up a MetaMask account, do all of these transfers and these off-ramps and on-ramps. I want a single button, put in $2,000, get me 4.7% yield. That's what the guys at WonderFi are working on.

ZACK GUZMAN: Yeah, it's a good nod to Mr. Wonderful too, the moniker that everybody knows and loves.

KEVIN O'LEARY: Somebody's saying, oh, you're just trying to be a Branson. That's right.

ZACK GUZMAN: All right, well, let's talk about that's obviously one area of growth here. But also when we talk about other change, if you got 75 basis points in Ethereum, you got the 3% in Bitcoin. Are there other things beyond that? I'm talking fringe that you've looked at and you enjoy.

KEVIN O'LEARY: I'm not a Dogecoin guy.

ZACK GUZMAN: Oh.

KEVIN O'LEARY: Cuban and I can agree on that one. So to me, that's not a real asset. That's a total speculation, which I get it if you want to have some fun. But I don't feel that way about other coins. Anything tied to a real asset is interesting. But what I'm concerned about on the fringe coins is am I compliant? I'm a very regulated guy, and I have to be compliant. So I don't really play too in the crazy space because I can't afford a call from a regulator, I just can't.

So I'm really concerned about compliance is number one, compliance number two, compliance number three.

ZACK GUZMAN: If you're an average investor, I guess, suppose you're Joe Blow on the street, you don't have to necessarily worry about those things as an investor and also a Shark Tank that people look to you for guidance on how to allocate maybe, would you be doing that if you didn't have those issues?

KEVIN O'LEARY: I probably would. I'd be more adventurous. I would probably have a larger portfolio. There's probably 20 coins you could go into right now or assets that are digital that would probably be compliant. And these platforms try and curate. You don't get on to the bigger platforms until you've got some interest, some aggregate AUM that makes sense. So the industry's self-regulating in that respect.

ZACK GUZMAN: When it comes to that, Coinbase is obviously one of those platforms. We saw the pop in Dodge, whether or not you agree with Mark Cuban on whether or not it's worth anything. There seems to be an effect, almost as if it's a stock getting listed on the stock exchange, one of the big ones. You see it pop like that. What's your take on Coinbase and their strength in the arena to be a stamp of approval?

KEVIN O'LEARY: I think Coinbase, obviously, has done an incredible job in building a brand and they were first. And that's always important. But that's a very centralized approach to DeFi. And I think what will be happening over the next 24 months is many other entrants in a decentralized approach that may not have a fiat ramp. But maybe Coinbase is where you convert your USD into coin and then you transfer to some of these decentralized.

So for me, you want to play both sides of that fence. You want to take a position. And I have a position in Coinbase. But I'm really intrigued by some of these decentralized mandates that are coming out, because I think that's where the puck is going in the sense that there's less friction in fees, there's total transparency. Some of them are building compliance into it for reporting, for example, capital gains and interest reports that you need if you want to be compliant with the IRS, which I want.

And so it's a really exciting time to be. Place your bets. You're at the horse race. I like to have three or four or five horses in the race because I don't know what's going to happen. So with my guys, I say, find me the smartest guys. Bring me the craziest dudes. I want the fringe maniacs and I want to invest in them.

ZACK GUZMAN: There's another area too just to wrap up here. NFTs are, I guess, you can consider very fringe as well.

KEVIN O'LEARY: Yes.

ZACK GUZMAN: And, kind of, risky because it's almost you buy them and you resell them at whatever price you can get auction style. When you look at the NFT space, are you a buyer there? Do you love the technology, but maybe not the way that it's being built out right now? How do you look at it?

KEVIN O'LEARY: I am going to make a couple of bets in that area, and I'll tell you why. If you look at what's going on, let's just take some asset classes like art, let's talk about music. Music is far advanced. They've been working on chain-based identification so you can't sample without paying a royalty for about three years now. And that's MIT working with Berkeley in Boston.

They have been working very-- there's a guy named Panos there that's led the charge. I support the Berkeley College, but I love what Panos is doing in terms of saying, look, any artist makes music anywhere, we can now identify it when it gets sampled. They'll get a royalty in perpetuity or as a state if he's passed away.

Art is a really intriguing space. And you've already started to see people making bets there in huge amounts. I have to get involved. I have to have a platform. So there's two right now, and I think I can add a lot of value in terms of getting that story out there because I'm an art collector. I'm a watch collector. I'm a pin collector. I appreciate that as an asset class. And so yes is the answer.

It's a really interesting journey because what I'm trying to do on NFTs is I want to work with artists and say, look, I'm very fortunate. I have a massive social media base. Let me help you get your story out and let's deliver your content on a digital basis. And here's how you can participate.

Now, I'm probably going to select art that I like. But I think that's the way NFT is going to work. You're going to say, look, this is-- I'll give you an analogy in watches. This is a very crazy watch, why?

ZACK GUZMAN: That's a nice looking watch

KEVIN O'LEARY: Because I love dials. So I collect dials not watches. I consider them pieces of art. And it takes me to many different journeys. This is an Aventi that comes out of Australia. But also F.P. Journe, that could definitely be, the dial could be digital because that's what he does. He creates dials. So I'm way down that rabbit hole.

ZACK GUZMAN: It's a deep rabbit hole too. The deeper you go, it gets deeper and deeper. Lastly though, we've talked about this conference and a lot of people coming through here. You have an interesting journey in terms of Bitcoin because you've evolved in the way that you looked at it. You catch a lot of flack, I know, from some people who are about your garbage take back when. We all change our views though when we learn more stuff about this technology.

KEVIN O'LEARY: But Pop never lets me forget. Every time I do an interview with that guy, he pulls the tape out from 2017 on Squawk Box. It's never-- that itself is like a meme.

ZACK GUZMAN: It comes back. It always comes back. But when you look at it, are there mistakes that you point to maybe as advice to people who are in this game now you look back on it and say, all right, here might have been my biggest crypto mistake?

KEVIN O'LEARY: Well, I'm clear now. I bought in 2017 both Bitcoin and Ethereum, and I've held it since then. The problem was the regulator. In 2017, the regulator was really not happy with an open dialogue on an unregulated asset. And that was not OK for me because I have many others I said earlier investments in financial services.

Then you saw what happened in Switzerland, Germany, France, England, Australia. Canada was the first to open it up for ETFs. And they brought out the first Bitcoin ETF. And then the regulatory environment here state side started to change. And now it's an everyday dialogue cryptocurrencies with regulators being more open to having that dialogue.

You have equity crowdfunding exploring digitization. You have all of these different initiatives. And I think in that sense, the cat's out of the bag. I mean, look at this conference. Is there anything as crazy as this? And no one thought this would happen. There's 50,000 people here. They thought maybe they'd get 5,000. It's 10x. The interest is beyond anything anybody expected. This is Woodstock. This is a digital Woodstock right now.

ZACK GUZMAN: Yeah, and I guess you and I both jumped in. We've been talking about this for years. And it's just one of those things where it continues to grow and continues to evolve and so--

KEVIN O'LEARY: Well, I think you've documented from the beginning. And now you see that the one thing we're missing, we don't have it yet, and it goes right back to the circle when we started talking is we need to solve for the institutional client. They want to invest in Bitcoin. They can't right now. It's a really weird situation. We've got to solve this ESG problem.

ZACK GUZMAN: How big is the Bitcoin ETF discussion here? There's more than 10 applications, I'm pretty sure, that are sitting in front of the SEC. How big does that change that discussion if it gets approved in the US?

KEVIN O'LEARY: It won't change the institutional demand if it's not tied to some form of a solution to their ESG committee. Some people saying, let's buy carbon credits as offset inside the ETF. Others are saying, let's just have coin that's completely fungible but was mined sustainably. So it could be a solar, could be a wind based energy source and that could be held by the institution. But most of the institutions I'm talking to have no interest in trading coins. They simply want to own it as a long term property, up to 5% weighting. That in itself is a trillion dollars with of demand.

ZACK GUZMAN: And not have to worry about all of these concerns in the new ESG front as well.

KEVIN O'LEARY: They don't want the headache of their ESG committee calling them every quarter as they review their portfolio. Some of these companies won't even own an oil stock. That's happening as we speak. That's why the PEs-- if you want proof of the pudding, for the last eight years, the price earnings ratios of every oil company that trades publicly to a T, almost all of them, it's been getting compressed. Even though cash flows are up because they've reduced CapEx, their PE is compressing. That's sustainability committees pushing out the stocks out of mandates, out of portfolios.

ZACK GUZMAN: And we've seen a lot of those giants loose some board seats over some of those ESG concerns too.

KEVIN O'LEARY: We saw this week. That was an unbelievable outcome. That activist team has less than 1% holding of the common. That just gives you an idea of the power of the ESG mandate.

ZACK GUZMAN: Yeah, lastly, I know sometimes price predictions are just thrown up in the air and you just talk about it. But I can't have you at Bitcoin 2021 without asking you where you think we go here. What do you look at in terms of returns across?

KEVIN O'LEARY: You know, here's how I've answered that question I've been asked it so many times. I think we will solve the ESG issue on Bitcoin in the next 12 to 18 months. And I think over the next 10 years, the Bitcoin asset itself will beat the S&P. So if you're thinking about a 7% to 8% average over a decade on the S&P, I think Bitcoin would be 300, 400 basis points over that. I really do.

I just think that the minute we solve the institutional ESG issue, Katy bar the doors because people don't understand the majority of the world's investments are in the institution and the sovereign fund. That's where the real money is. And that for this conference is the real opportunity.

I'm going to be talking about that in the panel today at 10:50. I've got all the public miners here. It's going to be quite an interesting event. I'll tell you why. I simply went to the institution, said on a no name basis, give me your top 10 questions because I'm going to have these guys on the panel. And any question you want, I've got a list, let me tell you.

ZACK GUZMAN: All right, always love catching you up down here in Miami. Kevin O'Leary, appreciate you taking the time. Thanks again.

KEVIN O'LEARY: Always a pleasure. Thank you. Take care.

ZACK GUZMAN: Right on.