More Bitcoin Mining Around The World? | Anthony Pompliano

[Applause] [Music]

Mr. Wonderful, Kevin O'Leary, are you there?

I'm here. Great to be here. Always a pleasure.

Are you in Miami?

I am. I'm in Miami, right on the beach.

Nice. Do you have pants on?

No pants. I just gotta, you know, I just gotta ask.

You had a recent trip to the Middle East, and you talked a bunch about Bitcoin and cryptocurrencies, regulation, infrastructure, etc. Tell us a little bit about the trip. Why did you go, and kind of what was the conversation like with the Middle Eastern investors?

Well, the largest pension or sovereign funds in the world are in the Middle East, and I was—I really wanted, you know, there's policies that come out of the region, but then there's also the opportunity to sit down and talk to the leadership there about what their intentions are in specifically Bitcoin mining. I was interested to see if there was a way to invest together because what they're contemplating in some of these countries are sovereign mining operations.

And so what is that going to look like? What I learned—and this is because you were talking about institutional adoption—let me tell you what I think is going to happen in the next 24 to 36 months on this very topic. Once a sovereign fund decides it's going to invest in Bitcoin, it's going to want to mine it sustainably and ethically. We've got a lot of controversies that started last year—I remember at Bitcoin 2021 and the whole Elon Musk thing. We've talked about it a lot—the conversation around ESG and his mining. Is Bitcoin going to be compliant with the ESG mandates? Specifically, the Larry Fink letter, the largest asset manager on Earth, BlackRock.

And so this is what I'm getting out of this conversation and the way I think I'm going to invest. Because I've always wanted to open up my own mining operations, and I'm going to probably do it in this calendar year. So number one is it approved by the community? Is it set up both politically and by the people that live there? What's the plan to give back to that community? So let's take a Nordic country—Sweden or Norway or something like that—where a lot of these adoptions are occurring. It's happening in West Texas too, but the whole idea is that you go to that town in West Texas, and you have an agreement with the mayor and the city council. Like, you're compliant with them. To start off with, you're going to give back to the grid—whatever it's going to be. You get them on board.

Number two, can you keep the reward? If when you get awarded a coin, can you keep it on the balance sheet? So I, as an institution, can buy your equity. I don't have to buy the coin. I don't have to go to my committee and say I'm buying Bitcoin anymore. I just buy your stock, and now I own the coin as long as you make the promise to me that you're never going to sell it. Because now I know it's being mined ethically, I know what's being mined with the community in mind, I know the political environment is on board, I'm not breaching any regulations, and now I own the coin, and I get exposure to the price through the equity.

I tell you guys, that's what's going to happen this year. You're going to see a ton of capital go into these new projects. Some of them will use old Chinese stacks because they're all exiting the country—all that equipment—and they're going to be set up in jurisdictions just like the way I described it, with the equity being the way the institution owns exposure to Bitcoin pricing. And those are the deals I'm going to invest in. So when you think about that, are there places in the Middle East that you think this will happen, or is it too hot there? Is the political climate not ready? How do you think of the Middle East fitting into that? Because you mentioned the Nordic countries, you mentioned places like West Texas. Is the Middle East potentially a place? They got a lot of oil, got a lot of power production going on there. How do they think about it?

Well, they also have nuclear power there too. They have excessive electricity available. It's about the cooling. You're right about that. There may be a way—and this is being explored by a couple of ventures right now—to build the facilities way underground in underneath the sand, like way down, so the cooling becomes far more efficient. These are really, really large stacks. We're talking about big, you know, close to billion-dollar facilities.

The way to start thinking about this—and I've come to the conclusion—is different jurisdictions. Let's take, if you're an investor like me, you've got to find jurisdictions where they're compliant with the local regulators. Now, the most advanced in my mind right now is Canada. Canada was the first to allow you to do an ETF with Bitcoin as the underlying asset. Then they opened it up for Ethereum. Now they have multiple ETFs in that jurisdiction that people from all around the world are investing in, compliant with the regulator. They just licensed the very first market crypto exchange—the very first in Canada. I know that because the company I'm involved in, called Wonderful, bought it last week for about $160 million. It's the first of its kind. This allows institutions or individuals—right now it's focused on Ethereum and on Bitcoin, but it's going to expand. The mandate will expand, and so it allows for people to set up accounts and actually do price discovery on an exchange. So we're very excited about that.

So it's got me thinking: where else is this going to happen? What other jurisdictions are going to open this up, and licenses are going to be granted? Eastern Europe, Nordic countries, Middle East regions. So I'm on an airplane all the time now. I'm going to meet with regulators saying, "Look, this is what we did in Canada. Can we do this here?" And when they say yes, I'll invest there too. I want to be in the exchange business. Why? Because I'm agnostic to price. The more volatility there is, the better it is for me. So if I make 8 or 10 or 12 basis points every time you're trading, I'm in a great place. It's the picks and shovels of the future of Bitcoin and digital currencies and payment systems. I want to be part of the exchange.

Alright, before we talk about the exchange, required one last question about the mining. If I tweeted and said Kevin O'Leary is considering investing in an underground desert Bitcoin mining facility, would that be like an accurate statement?

Not yet. Not yet. Not yet, because the technology has not been proven. It's being conceptualized. But the reason you don't see a lot of stacks in Middle Eastern or desert countries is what you pointed out at the beginning, Pomp: the heating costs are brutal. I mean ours are. The cooling costs are insanely, you know, brutal. So that's not—it’s not time yet because it hasn't been proven, but each year the technology advances. If there is a cooling system that makes sense, they're going to discover it because most sovereigns want to mine Bitcoin on their own land, where they have control of it, where they can do it ethically and according to the regulators' rules. Most people would want to do that.

Now, West Texas, and the governor in Texas, as you well know, has embraced crypto, specifically Bitcoin. There is a ton of capital going to West Texas right now, right down to the town level. And so there's multiple projects there, and I think you're going to see a lot of capital. And there's a big initiative on right now to find an American manufacturer for stacks so we don't have to buy everything from China for obvious reasons. China's got itself in a little hot water here and there, as you know. But we don't have that yet. So there's a lot to happen. I think this will be discussed all through 2022. This is where the puck is going.

So I've never told you this story before, but I went to Kuwait, I think it was in 2018 maybe. While I was there, I was at an event—very well put together—and there were both foreigners that were visiting for the event and also Kuwaitis. One of them said to me, "Hey, do you want to see a Kuwait Bitcoin mine?" And I was like, "You got a Bitcoin mine?" He was like, "Yeah." And so we went to dinner, and then afterwards we went to this Bitcoin mine, and it literally was in a warehouse basement. So, like, we went to this warehouse. It was kind of—you were like, "Alright, where are we?" And then they brought me down to the basement, and they showed it to me. It wasn't a huge operation, but it was big enough.

I remember asking him, "Why are you in the basement?" He said, "Well, you know, one, we might not want everyone to know that we're doing this here. But also, too, there's much more kind of cooling capabilities down here." So not quite underground in the desert, you know, type thing, and not quite the scale you're talking about. But, you know, years ago, there were people who, as an individual or a small business, were trying to figure this out. So it's cool to kind of see that it's evolved to the point where now you're talking about large billion-dollar facilities still trying to conceptualize this and put it into effect.

Now tell me about the Wonderful deal. So, just so everyone understands this, my understanding is that the Canadian regulators went ahead and they said, "Okay, we are going to actually approve a regulated exchange to trade in Canada—in the Canadian markets." And Wonderful and you decided that you were going to be very opportunistic here and you went ahead and bought that license so that now you own the only regulated, regulatory-approved, publicly-traded Canadian crypto exchange. Is that fair?

The history of the BitBuy deal is Wonderful itself had already made a bet on BitBuy, became an investor in a private round, and so they already were exposed to it. But it was before the license was granted. There was a lot of speculation that they would be granted that license; it wasn't done yet. But you're taking a chance, and you're betting on it. Great management team, fantastic guys running it, really knew what they were doing. It amassed 375,000 accounts because they were just a dealer broker at that time, like any other. But the market exchange license was unique and new and the first of its kind.

So we already knew the management. I was really attracted to the model. The whole idea of having an exchange—because if you look around the world, Nasdaq, New York Stock Exchange, the London Stock Exchange, the Zurich Borg—all of these places are where you discover price. And as a result, you are the infrastructure of the liquidity. And so I was really attracted to that idea that they would somehow, you know, get together—and they did. As an investor, I'm just thrilled. I'm very happy about it.

And now, as you remember, the Wonderful mandate was to work in the decentralized space. But what's going on here with BitBuy is a centralized exchange with the accounts. So they've combined both, and there's a narrative coming into the institutional investor. Think this through, Pomp: when I talk to institutional investors about investing in crypto infrastructure anywhere, when you acquire a customer, I don't care if you're Coinbase, if you're Wonderfy, if you're BitBuy—you've spent money to acquire that customer. And if you don't have a full suite of services, both centralized and decentralized, there's a high probability that if they want to go put their NFT on a decentralized wallet, they'll drift out of your sphere and go do that on their own because you didn't provide it.

So these new investments, these new companies that are emerging are trying to figure out: okay, if I acquire a customer, how broad a service base can I create? Can I be centralized, decentralized? Can I have brokerage accounts? Can I service them in NFTs? Can I do stablecoins? Can I stake those stablecoins for them? I'm of the opinion now as an investor I want managers that are going to bring a really broad sweep of service and products to keep that customer in their ecosphere. This is no different than what Apple thought through decades ago. And I think there's going to be some companies—and I think Wonderfy could be one of them—that emerge with a really large platter of services and not just in one geography.

I've talked to management there. I've told them, "Get on a plane, do what I do, go meet other regulators, go find out where you can take this model to other jurisdictions." And I think that's going to happen because Canada’s so advanced. A lot of the rules that they've set up there have worked, and I think they're a great model for other countries. So I think Eastern European countries and Nordic countries are potentially great places to set up shop, buy exchange licenses, and bring the technology over that Wonderful has. That's my investment thesis, and I've in fact increased my position there since we last talked. I've invested more.

Alright, and so when you think about how this is all playing out, the last time we talked, you had said that you were spending more time, I think in partnership with Circle, if I remember correctly, with the stablecoin yields. And you were also looking at some of the decentralized yields that you could generate. Walk us through kind of the yield generation, how you're looking at your portfolio today. Are you still doing both centralized and decentralized? What does that look like right now?

I'm primarily centralized on my staking and lending, and so I'm using two platforms and soon will be a third with BitBuy. FTX is my largest platform—obviously I'm an investor at FTX and a paid spokesperson; I have to disclose that. I do a lot of staking on there—pretty well any asset I'm constantly putting it out and generating yield there, specifically to USDC.

Though I have worked with Circle. Circle just updated their platform with a new treasury feature. The biggest problem we've got, I got to tell you, Pomp, this is still a nightmare for institutions and it's a nightmare for me. Let's just take staking for a second, alright? So I'm regulated—I'm a regulated entity. I have so many investments in other standardized financial services companies and indexing and everything else, so I'm regulated. I have an auditor, an external auditor. They mark to market my internal compliance marks to market my position every day and every stock and bond I have. It goes through, it's checked by compliance, and then it goes out to the statement that the auditor signs, and then we file our paper—I file our compliance reports to whichever jurisdiction we're in.

So think about staking—what a nightmare! You need—how do you mark to market that at 4:05? There's no such thing as a— the market doesn't stop at four in the afternoon in the crypto world. It's just 24/7. So getting this thing approved just for the staking—because I'm writing contracts all the time, 30, 60, 90 days, whatever it is—just getting the compliance guys' head around what we're doing took six months. I've told you this before. And what we needed was an audit trail. And Circle just added that with the treasury tab. You can go back and see every single transaction on a centralized platform—when it happened, when it closed, what interest you made.

So now the compliance guys are saying, "Oh, this looks like something I'm used to. I get it. I'm more comfortable now." Because they were treating USDC as an equity—as a stock—because we haven't had the regulator approved. I mean this is another problem, right? What is USDC? It's not an equity to me; it's a form—it's a payment system. It's software. But we don't have that ruling, and that's what I hope the regulator does this year is rule on stablecoin.

What do you think the ideal kind of framework or sandbox for the stablecoins are? Do they basically just say, "This is a currency," and treat it like a currency? Do you think it's some sort of regulated asset? How do you think of the ideal scenario?

Let's take Circle, turn it into a bank—FDIC—turn it into a bank. And let my compliance people say, "Oh, that's a currency. It's a currency, and it's regulated currency, and it's backed up by X amount of assets just like every other bank has to comply with, the amount of leverage they put on their balance sheet." And then all of a sudden, I wouldn't be bound by the fact that I have to treat it like an equity. So I can't have more than five percent of it in a mandate. The typical mandate’s twenty percent in any one sector, five percent in any one name.

Very few institutions—you mentioned fairly early on. Any of those funds that they're managing, you're not going to find a whole lot of the funds that are holding a position up to twenty in one name. They're kind of maxed out in the five, six percent range. But when you're dealing with cash or a currency, a Swiss franc, or a euro, or a British pound, there's no limits. You're basically—you can have thirty in cash, forty in cash, fifty in cash. If we could get stablecoins regulated that way, we could now keep our liquidity—in my case, I'd like it to be USDC—so that I could be constantly rolling it. Because think of the problem I've got. I got cash inflation at seven percent. I'm getting twenty basis points on US dollars. I'm getting taxed at 6.8 percent right now; there's nothing I can do about it. I'm losing 6.8 percent of value. The way to stop that is stake out my USDC at six and seven percent. At least I'm keeping intact with inflation. But we need the ruling—we got to have that done. And for my compliance people, let me do that because I can't have more than five percent USDC right now. They're treating it like a stock.

Yeah, it's incredible to think about how is the macro economy playing into all of this in terms of—you mentioned inflation—obviously there's a lot of talk right now about the Fed, interest rates, and kind of tapering. What's your general thought process on what happens there with the Fed's kind of decisions in 2022?

I think Bitcoin and gold are the two assets that institutions are eyeing for a hedge against inflation. And so many of the institutions cannot hold Bitcoin, so they're exploring owning the equity of the miners, and they run into the ESG problem. And you know, one of the discussions going on these days about the ESG—if you're buying carbon credits to offset what some are doing—some of the big public miners? Who's auditing that book? In other words, is there somebody that can show to the ESG committee of an institution that there really is a true offset? The way to avoid that is what we talked about earlier: simply get a miner that has zero emissions from the beginning and that is mining and keeping the coin on their sheet. You just own the stock. I think that's where we're going.

But you know, inflation's scary because we did something in this country over the last 26 months that's never been done before. We basically printed three trillion dollars. I don't care what you want to call the program—you know, the relief program or the PPP or whatever it was—we got out the machine, and we printed three trillion dollars. Never been done in any country ever before. Never been done here ever before. And then we thought to ourselves, "So we don't have to worry about inflation?" Are you kidding? Like look what happened! It spiked up to seven percent in a matter of weeks. Of course, it's going to do that. And now we have to live with that.

And the idea of another three trillion dollars is suicide. I mean, that's ludicrous! We can't do that. We can't. The Build Back Better is dead. I mean, you can't put that out in the market now. It would destroy the people it's trying to help. You’d have—right now we have on protein and meat, 24 percent inflation. I mean, it’s crazy! And so that's gasoline—five bucks a gallon in San Diego. Like, people are getting pissed—that's what's happening—and they're going to take it out on the polls.

Yeah, one of the things that I don't have an answer yet to, but seems to be happening, is there is a political appetite, obviously, for some tapering. Let's get this inflation down. Let's, you know, do some things to maybe have people forget, you know, how bad the economic situation is going into election season. But at the same time, inflation is still seven percent. You know, gasoline's up fifty percent, food's up, you know, all these different things—even food at home or out of the home is up six percent each. Like, this is a really dire situation according to the official numbers. We're not even talking about the unofficial numbers.

When you think of that, is there a world where, regardless of what the political will is, that the central banks could be talking about tapering, could be talking about raising rates, and actually back off of that, and their actions aren't as severe as the language? Or do you expect them to follow through with what they're actually saying in terms of kind of taking a tough stance against some of this stuff?

It's a great question! That's why we have volatility back in the equity markets. Because there are some pundits out there talking about six hikes in a row and some saying two. So somewhere between those numbers, you know, is reality. But you've also got this new pandemic—whatever you want to call this—this is kind of a different one than we had 12 months ago, but wow, there's a ton of cases. I mean, it's really sweeping through here. In Florida, we have extraordinary numbers. They've shut down the province of Ontario and Quebec—virtually shut it down because they've got such a raging pandemic going through there. Switzerland in the same boat. I'm just talking with my dad over there. I wanted to go and visit him; they've got over 30,000 cases a day. That's close to what it was at the height of the original pandemic. So there's issues that I think that, you know, the Fed is looking at saying I've got to balance this against what's really going on and trying to figure out how fast this latest round of pandemic burns itself out.

I would like to think by July of this year, we're through this thing, and the economy is going to come roaring back. What I find so interesting—and this is probably a great way to look at it—in Q4 when analysts started printing and Q4 was almost six percent GDP growth—extraordinary, extraordinary GDP growth—but they pulled back assumptions for Q1 down to just over three. They basically cut it in half. I think this quarter that we're in right now, every index I've got, including private companies I'm invested in, so I see their tear sheets on sales—the economy is on fire. It's just booming! I bet you we're going to print north of five in this quarter. It's going to be much better than people thought. This is my own take on it, and it's going to really buoy the equity markets back up. Because when you're talking seven percent inflation, you do not want to be in fixed income. You want to be in something that at least keeps pace with inflation—that's equity.

So I think it's going to be a pretty good quarter, but it also may mean that the Fed is hiking. But why are they hiking? They're hiking because we've got such a strong economy, and that generally does not offset the pace forward on constructive ownership of equities. The first few rate hikes generally do not destroy a bull market, and we are in a bull market.

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