NFTs Will Be Bigger Than Bitcoin! | ft. guest shark Kevin Hart!

What are the one or two things that are necessary, um, for a software platform to succeed at scale? You mentioned speed, but what are some of the qualities that are necessary, um, for one of these platforms to win? You know, what in the end of the day determines the platform's success and value is adoption rate and acceleration of adoption.

And the only way that occurs is that they have done some, uh, development that solves an economic problem. I always say this about digital currencies and digital platforms: what problem are you solving? In what way are you enhancing a transaction or a problem that already exists? Are you reducing friction in financial markets? Are you accelerating transactions or accuracy or authenticating them? What are you doing that adds economic value?

So I would argue long-term coins that have no economic value are that because they don't solve anything; they don't act, they don't create any value anywhere. And so, I'm very skeptical of, you know, meme coins long-term. And look, there’s nothing wrong with trading; that's a lot of fun. But when you talk about developing, um, and you're sitting around thinking about what problem are you solving, that's where the economic value is.

So adoption rates and the reason Ethereum is so large now is because it was first, that it was widely adopted. Now, because some of its shortcomings are being noticed by certain sectors of the economy, these other teams, the Polygon teams, the Solana teams, and others are saying, “Well, it's not good enough for what we're doing, and we're going to make some changes here.” And that is very much worth investing in.

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There's a reason they call me Mr. Wonderful; I look wonderful. How do you define an asset bubble, and do you think that we are in one right now when it comes to crypto? You know, I that's a great question, and I've watched bubbles grow and pop and everything else. The thing to realize is the market is the market. No one person can manipulate it, even though people claim they can. It's millions of decisions being made every second in terms of what something is worth, and it applies to every market, whether it's tulips or watches or bitcoin or real estate or gold.

It's the same dynamics when you have a large participation in the asset class, and millions of people buy and sell it. The only thing I trust is the market price because you can't say it's overvalued or undervalued. The market determines that for you. You can make a long-term bet that it will appreciate over time for various reasons, but when you start to say something is a bubble, you're effectively saying you're going to do some market timing. That you know something that everybody else doesn't know.

And once in a while, you can be right, but over the long run, it's a fool's game, and you can't win. And so my attitude about this is allocation and diversification. So if you tell me that bitcoin is in a bubble and overvalued, you may be right, but it doesn't really matter to me in terms of allocating to bitcoin. It's going to be allocated to because it is an asset that millions of people own, and its market price is being determined by the second, 24 hours a day.

I happen to think it's an asset, not a currency. I like the software development underneath it. I think all the issues around ESG are going to get solved in the next couple of years, and it's going to be more efficiently mined. But I love the market being the market. So, you know, that's a really long answer to say you can't know when it's a bubble. You simply can't. And if you think you do, you're absolutely wrong.

Yeah, that's fine. I ask that question; I see some people ask that. I realize everyone has a different definition of bubble, so unless you define what you mean by that, the answer won't mean anything.

You talk about asset diversification and strategy, and, um, a lot of people, especially, um, investors that have held for a year, two years plus, I've seen the allocation in their portfolios grow to much higher levels than where they started. Um, do you have any thoughts on how people should they rebalance? Um, out of crypto into stocks, or should they try to rebalance some of their crypto from, um, like more edge assets to large cap assets or what, um, what are some strategies or thoughts that you've had, um, as your holdings have just appreciated in value?

That's a great question. I get it all the time, and my answer is always the same: it's a binary decision, first of all, to own crypto or not. Many people are skeptical about it; they're still not on board. Their answer is no, and they don't have any allocation problems. For those of us who have changed our minds—and I'm one of those constituencies—I have decided that this is a real asset class, that the software development has economic meaning, and I should be an investor in it.

So diversification is my number two issue. Now, in the stock world, in the bond world, and these assets that have been around for hundreds of years, I have very simple rules that mandate how I own them. I never let one stock become more than five percent weighting in any portfolio, and I never let a sector—of which there are eleven sectors in the S&P—ever become more than 20.

And so I am using the same rules now that I use then on crypto. So instead of, you know, people say, “Why don't you just own bitcoin and ethereum? That's all you have to do.” Everything's correlated to the price of those. I don't believe that to be true, first of all. And there's many other economic applications or software or level one, level two blockchains that are very interesting to me that have nothing to do with bitcoin that I want to invest in.

So what I'm trying to do is build a portfolio that at some point might get to 20% of my operating company. Right now, it's just over 10, about 10 and a half percent. But within that portfolio, there's no one token, coin, or chain that's more than 5% of that portfolio. And so yes, I am actively, um, adding and trimming based on volatility, and we've had lots of that in the last couple of weeks.

Secondly, I'm doing a lot of staking. Most of my positions are now being staked, and I use the FTX platform for that. And I also hold a significant material position in USDC because I am now starting to pay for assets in USDC and be paid for assets in USDC. So it's become another currency in my portfolio, and I staked that as well. And I'm working with Circle on that.

It was one of the very first corporate accounts opened there, and I'm doing a lot of work with my regulators and with my accountants who have to sign my external, um, quarterly reports. One of the things people forget is crypto, so niacin, including all these other tokens that, um, you have a lot of work ahead of you in terms of being compliant. I've certainly, uh, lived through that in the last six months.

Yeah, it's funny. I was actually talking with Jeremy at Salt back in September, and he's, as we speak, I think he's right now being grilled by Congress, um, about regulation. So I was going to ask you about stable coins and your thoughts on their potential utility and also, like, if they're going to be able to sort of withstand all this regulatory backlash that they seem to be receiving right now.

I'm glad, uh, Jeremy is taking this, uh, bull by the horns and wanting to be part of creating policy for stable coins. They are here to stay. Um, I remember when I first bought my first USDC; I think he had 2 billion under management or issued, and now it's over 30. So it's been adopted widely by lots of, uh, corporate entities as well.

But I would prefer that it be regulated. I would prefer that the rules, uh, be set by the regulator so that I can increase my exposure to it. And frankly, and I'm not speaking on his behalf, I'm just speculating, if he had to become a bank, regulated like other banks, he would probably do that, and that would be fine with me too. You know, I think he's actually applied for a banking charter. He has, he has.

And so that's an indication from external viewers. And, you know, I—and I'm also just to be forthright and transparent, I'm a participant in the pipe should he finish his transaction with a SPAC to go public. I'll be an investor in that pipe. And so for me, I've already, uh, decided that the stablecoin I'm going to use is USDC. I'm very comfortable with it.

I do not want to own any asset that the SEC is investigating or litigating. I want nothing to do with that. I am not a crypto cowboy. How do you—I mean, yes, you see—I'm curious you mentioned that because they won't disclose what they're investigating usually, so how do you—I mean, some of them, the ones that they are and have disclosed—yes, exactly, it's widely known.

And so the minute that that information gets out, I want nothing to do with it. And if I had a position, I would sell it. I have no interest in going into conflict with regulators over my crypto portfolio. I want to be 100% compliant; that's my mantra every day. And that's because I want to play in the institutional market. I'm not interested in being, you know, some guy sitting at a desk with his iPhone trading bitcoin; that's not what I do.

And so, um, this is the beginning of a very long process by which the regulator will set rules because everybody knows this asset class is not going away. So, I mean, one of the reasons that a lot of people know you, honestly, the first time I first heard your name years ago was from Shark Tank and sort of the, like, taking the VC approach to, to investing.

And, uh, with some of the long-time horizons that, uh, certain people purchase coins hoping that they'll pay off in five, seven, ten years from now, I'm interested in you putting on sort of your VC hat and thinking about how you approach the space from that point of view. Yeah, I mean, that's a great question because that's how I'm approaching the space. I have made investments in nascent tokens very early in their development, same with level one, level two chain companies.

I basically look at the landscape. I keep my, you know, I'm pretty wired into the community now, which is great. And so when I hear of a new, uh, team, a new idea, I'm very fortunate. I simply call them up and either do a Zoom call with them or physically meet with them if I'm going to be in that country.

And sometimes I acquire a control position; sometimes I just take a shareholding position; sometimes I buy them with one of my public companies, and I'm an investor in—I do all of the above. But I go back to the idea that this is no different than when I was at the Learning Company looking at teams that were building educational software or gaming software.

There's no difference at all to me, so, you know, I've been doing this for 35 years and crypto is no different. And it's a very comfortable space to be in for me. I mean, I just, I just consider it software development and all of the other, um, you know, whatever you want to call it, social media hype and all the blogs that, you know, this Dogecoin over Bitcoin and yadda yadda, it's all irrelevant to me.

What matters to me is what's the software do, what problem does it solve, where's the economic value, and who's maintaining the code? That's how I look at it. Are there a couple of the biggest misconceptions about crypto that you find yourself having to, to refute when you talk to friends or family and they look at you side eyes when you, when you talk about crypto?

Yeah, um, there's, there's, you know, the different cryptos have different issues. Dogecoin is a meme coin; Potherium, which is, uh, gives—which is a coin for, you know, Dogecoins for dogs; Potherium is for cats. Potherium gives to animal shelters. I mean, these are meme coins, and so they represent communities and people that have an interest. And so when people are skeptical about them, I say, “Look, they have a following because people believe in their mission, and who are you to refute it?”

Now, when it comes to Bitcoin, there are many issues that, uh, that I get cornered on a lot. The largest is ESG. People are very unhappy with the way China made Bitcoin, you know, in past years by burning coal and making electricity, and obviously, there's a lot of controversy about that. And here in the U.S., we are looking for ways to mine bitcoin and be awarded coins on an ethical and ESG basis.

I always go back to the same answer when people are so skeptical. I say, “It's the market being the market, and who are you to tell the market what to do? You can be a participant in the market, but you in no way can control it.” And, you know, that is the best way to look at cryptocurrencies and crypto assets and blockchain in itself.

Um, because this is December 2022, I have to ask you a question about NFTs and the metaverse. So, uh, two-part question. Um, generally, what are your thoughts on, um, on this I guess relatively new vertical?

Yeah, look, I think NFTs are going to be, um, bigger than Bitcoin because they offer so much value around authentication and inventory management and all kinds of use cases in different asset classes. I prefer NFTs tied to hard assets, physical assets. The one that I'm working on developing a white paper for is the watch industry.

I've invested in that because we have so much fraud in watch collecting, and we can eliminate that fraud using some very high-resolution scanning of dials linked to NFTs on the smart chain so that the watchmaker can identify what they made, when they made it, and who owns it, and when it transacts in the open market and when it's stolen as well. So I think that's a very big market, and I'm investing in that space. I made a material investment in Immutable Holdings, um, Jordan Freed's company, who is, uh, who owns NFT.com, which he's launching in January, as well as Wonderfiy, uh, which is, um, a company that's consolidating assets in the crypto space.

And they're both large positions for me, and I like the management teams, but they are focusing on creating value around the NFT market, curating them, creating them, managing them. There's a lot of work going on in making these ubiquitous and very liquid so that, you know, that an NFT can trade on any blockchain, whether it's Solana or Ethereum or HBAR or whatever. These assets are going to be very big, and I think next year, 2022 is going to be the year of the NFT.

And actually, just leads me to my last question. I wanted to know if you had any big predictions for 2022?

It's NFTs! I think you're going to see such remarkable software development and momentum in so many different asset classes. Uh, it's going to dominate the headlines in the crypto space.

Cav loves watches; who knew? Yes, I love watches. Kevin, Kev, love watches. So we're comparing the hardware. What do you love, Kev? I am an AP guy at heart. Uh, Audemars Piguet, yes, Royal Oak.

Okay, yes, I'm a very, I'm very much well dedicated to the Royal Oak term space. I'm a sucker for craftsmanship; that's what he—yes, yes, sucker for craftsmanship. More importantly, the open-faced world of watches; I love to see the story behind. What are you featuring right now?

Well, this is a skeleton; this is—that is so hot. It's a platinum; you know, that's what he said. Yes, yes, sucker for craftsmanship. More importantly, the open face world of watches; I love to see the story behind. What are you featuring right now?

Well, this is a skeleton; this is—that is so hot. It's a platinum Royal Oak skeleton; uh, one out of 150, I believe there's only 150 of these pieces made. This boy knows how to buy watches because when there's only 150, the price goes— it goes up.

That's right; you're making money. That's right, absolutely. And you bought it at retail? Absolutely, no, no. You have to be able to make smart purchases. And, uh, because of myself and my relationships with these brands, I'm able to get in at cost and not, uh, go to the secondary market and have the whole—so a watch like this is up almost 100 percent.

That's why absolutely the key is to really develop your brand with the watchmakers because they want to give you retail prices. Absolutely, that works. But that's a heck of a piece; that's a skeleton, really, really hard to get. And probably if you wanted to buy it, it would be very expensive today.

Yes, today it's extremely expensive, which is why it's good to have great partners. Shout out to my team at AP. François, I love you, thank you for always making me happy. Oh, you're really sucking up the Francois. That's no question. Where is my one-of-a-kind Shark Tank AP skeleton? I'm still waiting for it; it's coming; it's been two years.

Well, hey, look, I don't know what that is, but I do know they give me mine on time. All right, wow, ain't that outrageous? But just while we're at it here, let's talk this little piece; Eye of the Tiger today, I have the tiger.

So, you know, let's just touch those faces. Shazam! That's what happened; value was created there. I love that on the Shark Tank. See you next time. If you liked that video, wait, did you see my next one? Don't forget to click right over here and subscribe.