The Future For Cryptocurrencies After Bitcoin Mining Ban

[Music] I want to switch a little bit and talk a little bit about the sort of systematic approach, and you know you being a big part of Shark Tank, and going through a large amount of different pitches and different businesses, looking at the numbers. Is there any specific list of processes or things that you look for specifically before you decide to invest into a startup or an idea, and what these things are?

Yes, there is. This is getting more important every year. If you looked at a mix of Shark Tank companies or any consumer goods or services companies before the pandemic, the global pandemic, and you split revenue or income into a pie chart, here’s the different channels it would have come from. 50 percent would have come from retail at 50 cents on the dollar. Retail distribution prior to the pandemic was the way most consumer goods and services companies provided their product to customers all around the world.

40 percent would have come from Amazon, which is basically a large retailer, but that’s not 50 cents on the dollar margin. Amazon is 60 cents on the dollar margin, so slightly better. However, Amazon, as you’re well aware, does not give up its customer data, so you have no idea who you’re selling to. Amazon keeps that information for themselves and has made them highly competitive because they analyze that data in a way that you can't or couldn't before.

Prior to the pandemic, 10 percent of revenue was coming from the company's own website, direct to their consumer. Generally, they'd set up on Shopify or something else and work with Facebook geo-locked advertising that worked for them all around the world. Now that is an 80 to 85 gross margin business when you sell direct to consumer. However, most of them were not making money on that channel part of the pandemic because they had really high customer acquisition costs.

That's a long answer to your question, but the point is customer acquisition costs today, when most businesses have gone 50 direct to consumer, is the whole business. You have to understand how to acquire a customer and have its value be less than the cost of acquiring it. In other words, if your customer acquisition cost is more than the lifetime value of the customer, you're going to lose a lot of money; that’s going to be a bad outcome.

So you've got to figure out how to do this successfully, and I think at the end of the day that's the most important thing that I look at on any Shark Tank deal. Any deal, I ask you, what does it cost you to acquire a customer? And you tell me five dollars, let’s say, and I say, what's the lifetime value of the customer? 25? I’m ready to pour millions onto that business model because that’s just pouring gasoline on the fire. All we're going to do is acquire more customers, gain scale, get more market share.

But that’s not the case in many companies; they don’t know what it costs to acquire a customer, and I avoid investing in those ones. I like the answer. I think that you... I think I understand why you’re getting into the NFT space now, right? It's not a numbers game for sure.

Yeah, and also, you know, Kevin just pointed out the exact numbers of what my chocolate business does. So, Kevin, I own a chocolate factory over here, and it all started with a social kind of what we talked about earlier about having a mission, a good mission, and it was to support the farmers.

Because in any food-related business, it’s not me who has the highest risk, it’s the farmers who have the highest risk, especially in the cacao industry, in the chocolate industry. Now, what I felt running the company, one thing was, yes, I'm doing right. I can go to bed knowing that I'm doing something right every day. But especially here in Asia right now, what has happened I feel is it has become like a fashion to say this thing but not actually doing stuff right.

And not necessarily, as a business owner, has translated for me for sales. There are other mediums that help me get the same. What do you think is that about? Is it kind of like going into a fashion nowadays or, you know, much of an industry inside? Or actually, are people actually doing stuff when you look at the market?

So, the way a mission is communicated to a customer is through social media, and this is the risk of it. For people, as you said, some companies decide that they want to be fashionable, and they come up with some sustainability idea or some give back strategy, which is complete marketing and BS essentially. People have become very hip to out there; they know when they're being lied to; they know when it’s a scam; they know when it's not honest, and they take swift action against companies that try to do that.

If you really have a sustainability mandate, if you really do give back to farmers, if you're really doing that, show examples of it on social media that people can connect with because that’s how they connect with your products and services. Every single one of my successful companies has the four positions I talked about earlier; able to communicate, able to explain why they can execute, they know their numbers, and their social missions are communicated through very strong social media.

Particularly in Asia, the platforms that work better there are not the same ones that work in Switzerland, that work in the United States. You really need to understand how you can attract your customer to meet you and keep that daily dialogue open on social. What I learned was so interesting about the companies that were successful is during the pandemic, they told their struggle stories online every day. They would do a 59-second video and talk about what was going right and what was going wrong with their business, and their customers got more engaged with them and became even stronger supporters and bought more products from them during the pandemic.

Because first of all, in many cases, they were sequestered at home, and secondly, they wanted their companies to be successful. That direct connection. So, you know that mission, whatever that statement is with examples online and well shown on the different platforms.

And I must say this about social; it’s our number one spend across all our portfolios now, but the skill set needed to publish on LinkedIn is different than TikTok, is different than Twitter, is different than Facebook, is different than Instagram. And now we have separate managers on each different vertical because we’ve learned that one skill set does not translate to another in terms of managing the algorithm changes that occur every day and sometimes twice a day to understand what’s working and what isn’t in communicating with our customers.

So important. That’s very insightful and special for me. You know, I was communicating that for a long time, and sales didn’t pick up. I guess that has more to do with the Asian thing of, you know, going with the trend and not actually who's doing right, but that’s a whole another story.

Kevin, how much do you value, you know, in the world where networking your communication skills and, you know, your how great of a storyteller you are, which plays an important role? Where do you see a college degree fit in all of this? Do you think it’s still as important as it was 5, 10, 15 years ago?

That’s a great question. That is a great question and very insightful of you to ask that because, you know, I spend a fair amount of my time teaching graduating cohorts of engineers, MIT, Harvard, Waterloo, McGill, Temple, Notre Dame. And I meet these. You know, the reason I do engineering cohorts is a third of every engineering class, regardless of what discipline it is; electrical, computer science, whatever, they’re going to start their own companies.

And I selfishly want to meet them first before they start talking to the venture capitalists. But if the information is the same, you know, the thing about a college degree, it’s not what you learn there in your classes that ends up being valuable to you; it’s the people you meet. Because in your career, you're going to run into these people your whole life, and they're going to go and disperse into different disciplines and different companies and banking and whatever else it is, and you will draw on them as a resource as they will on you in your career because you know each other.

You can’t make new old friends; that's not possible to do. So what I found in my own life is, you know, my MBA, for example, I spent two years getting a master’s of business degree. I don’t remember a single thing in those classes; I have no idea what they taught me there. But the people that I met there are now some of my most important business contacts and bankers and associates all around the world because they've scattered, you know, from Shanghai to Hong Kong to Phnom Penh, Cambodia, to Julia, Switzerland.

And I do business everywhere, and there are my contacts there. And some of them have gone into politics – very powerful allies in the U.S. Senate. And, you know, it's all about those relationships. So I would argue that a college degree, whether you're going to burn through one year or two years or, you know, four years doing it, has tremendous value. But pick a discipline where you can actually make money.

You know, unless you're already successful financially, you're gonna have to pay back 80 to 100 thousand or 80 to 100 thousand Swiss francs or whatever it is you’re going. And so you have to understand that this is an investment in yourself, and then you should think a little bit about what you want to do and find something you're passionate about and invest in yourself that way. But it won’t be the classes that matter; it’ll be the relationships 20 years later.

Absolutely! I've had exactly that experience of graduating from different universities and being able to test out essentially different academic systems. I studied in Switzerland, Denmark, and the UK. I spent time in the U.S. as well. And, exactly as you say, it was not the classes at all, but it was the experience that came with it, and the essentially the network that I was able to get while I was studying or while I was doing my internships that really made it valuable at the end of the day.

I'm glad you had that experience because then it was really worth what you did there. That’s terrific. Absolutely. And meanwhile, I'm a proud dropout. Make a great team, right? It’s a balance right there; it’s a yin and yang.

So now moving on to the NFT, and what was the thing that changed your perception on the space, or on the software, on the technology? And when did you kind of realize the utility of it and what it can bring to the world?

You know, in 2017, I bought my first positions in Bitcoin and Ethereum. However, if you recall, and I'm invested in many financial services companies that are regulated by the regulator in multiple jurisdictions, so I have to report on a quarterly basis, sometimes a monthly basis. I have internal compliance officers and external auditors, and I also have to file with regulators in the geographies where we do transactions, and we own exchanges.

Obviously, when you have that responsibility, particularly when many of these companies are publicly traded, you simply can't go offside with the regulator; that’s not an option. In 2017, the regulatory environment against crypto was toxic. They were very concerned that the tokenization of assets that were trading on, you know, not under regulated prospectus, particularly in the New York area, that people were trying to bring debt deals for real estate with tokens, and it was chaos.

My own compliance department said, "Look, we are getting signals from our lawyers that you simply can’t get involved here because these are unregulated securities and breaching securities laws." That’s 2017. Fast forward a few years, and all of a sudden we start to see regulators around the world, in Switzerland, in Australia, New Zealand, in Canada, in England, not the U.S. yet, starting to open up to the idea that there’s productivity available in not just, you know, Bitcoin.

Bitcoin is one software, but also Ethereum as a transactional platform, and Polygon and H-bar and Helium and Avalanche and all of these other software projects. So that, for example, in Canada, they were the first to allow an ETF, an exchange-traded fund, to be traded publicly with the underlying asset being Bitcoin.

Now, obviously, when I see that, I’m realizing things are changing, and I'm looking at our deal flow and saying, "Look, everybody, I’m a believer." I’ve watched the value of my Bitcoin from 2017; it was one of my best-performing assets, obviously. And Ethereum, and I said, "Look, we should start to explore a relationship with the regulators and find out what we can do in the different geographies because they're going to change their policy at different paces."

Right now, the most advanced on earth is Canada; they have just licensed the first crypto exchange tied to a dealer broker. So that’s a company called Bitbuy. I’m very proud to say that I'm an owner of that. We acquired the company through a public company called Wonderfy, one of my digital assets that I've invested in.

We’ve also gone to Switzerland, we've gone to Lithuania, we're in Costa Rica, we're talking to the UAE. All of these areas are licensing new crypto exchanges. I really like the infrastructure of the internet. My whole point is what changed is the regulator changed. They have become far more accommodative, and obviously, you know, I had a chance this weekend to talk to some of the senators here in the United States about their policy, and they're beginning to form committees to start exploring regulating stable coins like USDC, regulating Bitcoin, regulating Ethereum.

So I want to be part of that dialogue, and I’m very optimistic that I will be. I think that this is finally—the regulators are saying there’s too much value in these platforms; let’s look at it.

Talking about regulators now, obviously, in the NFT space, it’s a wild west; it’s a gold rush of the century. That’s how I look at it. But at the same time, it's a place where people get scammed. They lose their money left and right. Now, that’s when a kind of a central authority is good to have. But somehow, do you feel that having a regulation is against what crypto was actually meant for, like this, you know, decentralized system, no authority kind of thing? How do you kind of, you know, work your way around those narratives?

Yes, I mean, you are right; there is a narrative. You’re a hundred percent right. The founders of this theory and the founders of the coding and the founders of the first capital raised had very much a decentralized mandate, and that’s true. However, let’s think about it collectively: all of us that are advocates of cryptocurrencies that have made investments in crypto.

One of my businesses indexes for sovereign wealth funds, including where you are right now, in the Middle East and the UAE. They’re the largest pools of capital in the world, and they virtually own no crypto. The reason they don’t own it is that it’s not regulated, and they are under mandates—their sovereign mandates or their pension mandates—to only invest in regulated securities.

Now that’s the other side of the equation because if they were allowed to, they would invest. A typical mandate on a, you know, 50 billion, 100 billion dollar fund, you give an example, would be no more than 20% of the assets in any one sector. And there are 11 sectors in the S&P and no more than 5% of the fund in any one name or any one company.

So when I asked them how how would you like to index for cryptocurrencies, they say, "If they could buy Bitcoin, they would put a weighting right now on between 1% and 3% of Bitcoin."

Now, when you have 100 billion dollars under management, 3% is a ton of money. So if you want to see your Bitcoin traded a quarter of a million or half a million dollars a coin or a token, you’re going to have to let these institutions into the market. They are the incremental buyers and they don’t trade; they’ll buy Bitcoin as an asset and hold it in perpetuity, which makes the whole environment more valuable.

And so the reason you should pivot from the opinion if you have the dogma of saying, "I want to stay decentralized, no regulator," you should think about that. If they were to regulate, and the biggest regulator on earth that says policy for most markets, financial markets, is the SEC in the United States, since that’s why they’re taking their sweet time and going very slowly, they know what’s going to happen.

Right now, those exchanges I talked to you about in Canada and the United Arab Emirates only trade two assets: Bitcoin and Ethereum. No staking, no lending, no margin; they're just starting their journey as regulators to allow—to see what happens.

But as time passes, my investment thesis on Bitcoin and Ethereum and all the other Level 1 and Level 2 that I own is when they get regulated—including USDC, which is the stable code of choice I use for my corporation. I'm limited by my own compliance department to only have 5% in it because they consider USDC a highly volatile equity. I don’t think of it that way, but that’s how it’s regulated currently.

So, we’re gonna have to get a ruling on stable coins too, but my point is when that happens, the value of all your assets will increase geometrically because the amount of capital that will be willing to invest in them. So that’s the balance of that argument; you got to think about.

That’s really—I never thought about it that way, Kevin. That is like, you know, just had just exploded; that was amazing. Thank you so much for that.

Now, speaking of— I mean, when it comes to regulating crypto, it does make sense, but now speaking of NFT specifically, NFTs have been around for a while, but on the grand scheme of things, it’s still the very early beginning. The adoption is very limited at this point, with, you know, the major exchange being OpenSea at the moment. And it’s somewhat too centralized.

Looking at the NFT space, what kind of regulation do you see in that space on the horizon with your insights into the NFTs?

Yes, I have had a chance to talk to the communities about this. The biggest question for NFTs, and you’re right there, it’s a very fast-growing asset class, is whether it's a security or not. When an NFT and smart contract has a royalty associated with the transfer of ownership, it is distributing capital. That generally is interpreted as being a security, no different than a bond paying interest or a stock paying a dividend.

But we haven’t had a ruling on that yet. More concerning right now is what you said earlier—that there’s a lot of scamming going on in the NFT space. So it'd be much better for all of us—and I’m a huge believer in NFTs—if we could find some way of providing a new level of security so that you as an owner who have made an investment, whether you've done it on a centralized or decentralized wallet, should have some sense that there’s security and an auditable position and a path to understand, you know, when something does go awry or it’s been stolen—that there is a way to pursue it. And we don’t have that right now.

So I would say investments in much more secure wallets and better functioning wallets would expand the NFT space geometrically. And so the biggest challenge that it's holding back NFTs, in my view, in terms of becoming investable with institutions—and remember, I always have my institution hat on because that’s where all the money is—it’s great that, you know, we as early investors in crypto, all things crypto, including NFTs, are willing to learn and spend our time and take risks out there.

But there’s billions and billions of dollars of institutional capital that wants to go to work there too that we have not given them the compliance infrastructure yet to be able to do that. For example, when you buy a stock or a bond in a pension plan, you know, for a university in Geneva, they immediately are able to see at the compliance department how much you put on, whether you use leverage, the position is reported at the end of the day. The auditors can see it anytime they want, and the regulators have a report generated that they get every quarter, every month, or every week or every day depending on the geography you're in.

We have nothing like that in anything on crypto; you have to manually do it yourself. That makes, you know, regulators very nervous—there’s no audit trail in most of these platforms. And so when I talk to institutions about NFTs, they say, "Well, is there some piece of software you have that we can attach to our compliance department now so we can openly buy, purchase, trade NFTs the same way we do stocks and bonds?" That does not exist yet.

Now, companies like FTX are working on that, and that's why I'm associated and a shareholder of FTX and a paid spokesperson. They had a fantastic ad on the Super Bowl last night with Larry David; it was very funny. And, you know, at the end of the day, that’s why I invest in these platforms.

We're going to grow it to be institutional grade, and NFTs will continue to grow in value because the institutions, just like Bitcoin, will be willing to trade them. It’s one of the most exciting areas of crypto, you are absolutely right. Huge potential.

It does have huge potential, but right now, you know, after having our own NFTs and kind of launching it, we became like number second in the whole world to trade in terms of volume and all of that kind of stuff. It was an amazing launch we have had. We're still not sold out; we still have like 25 to sell out.

And what I realized was I've always been a technical guy—just numbers and, you know, as a trader, just look at the charts, and that’s me. But here I was kind of looking at the psychology of the whole market—not just NFT but crypto overall—it’s run by a lot of greed, a lot of greed. And people, it's like a mentality of get rich tomorrow or I mean right now. Right? So do you think that’s going to affect the future in any way, or that’s actually the reason it will, you know, go to the moon?

Well, there’s a great analogy because you’re absolutely right. It is driven by a lot of greed and a lot of theft and a lot of instability right now. But if you went back to the gold rush, it was driven by greed; it was driven by people willing to take huge risks to go and explore and find gold and become wealthy.

And the people that actually got wealthy provided the infrastructure to them that eventually provided all the equipment they needed to build gold mines. I'm in the camp that you need to be in both—I want to invest in NFTs, and I do—but I also want to invest in all digital infrastructure, which is why I’m so interested in the exchange licenses that are being granted all around the world.

I’m very interested in investing in those wherever they pop up because they’re not coming to the U.S. anytime soon; they’re starting in other jurisdictions like Canada, like the UAE, and other countries. And so you have to be a bit of an explorer to understand that we’re in the early phase, and greed does drive a lot of motivation, but so does theft, and most people are not willing to admit it.

I am; I've had a wallet that has been hacked. I've lost assets; I've lost NFTs, and I've learned my lesson about security, and I have a different protocol now. It’s very hard to steal my assets now, but I’ve had to learn that we’ve got to make it easier.

And so this cowboy notion of, you know, the wild wild west, which was there in the great gold rush, is where we’re at in NFTs right now. But over time, you know, there’s so much interest in them, whether it be art or authentication technologies or real estate transactions or whatever it is, because it essentially is a licensed wallet with an audit trail, which is very productive.

We will continue to see advancement here; it is not going away. In other words, the genie is out of the bottle, and you’re just going to have to stomach the volatility, but it has huge upside, definitely.

Definitely, it’s a good gold rush to have, definitely. Yeah. Now, knowing that, for example, you know, China is banning crypto or there are other countries, other jurisdictions that are banning cryptocurrencies, and there is also a lot of negative environmental impact that is associated with mining and the whole decentralized infrastructure.

With that in mind, what future for cryptocurrencies can you envision or predict coming into the future?

This is an excellent question; I mean, this is really the question of the day for all of us involved in cryptocurrencies. You’re talking about China banning Bitcoin mining, and there are other countries, including Russia, that are contemplating this as well. And you are right; what is driving this motivation are concerns about ESG.

So let me walk you through what is happening with the capital. You know, what I like to watch is the flow of capital; where is it going? Because that will dictate what’s going to happen in the mining industry. So two years ago, before there were any ESG concerns on Bitcoin mining, when the majority of awards were coming out of China, there was no talk about burning coal to make electricity that was environmentally harming Bitcoin.

There were lots of miners, you know, burning lots of carbon, whether it be gas or coal or whatever, to make coin, and nobody cared. And then you saw this movement with institutional capital. It really started with BlackRock, the largest institutional manager in the world that does a lot of sovereign wealth, etc. They put out a mandate saying, "Look, there are certain sectors of the economy that we no longer support," and one of those was anybody burning carbon, particularly burning carbon for Bitcoin mining.

And so prior to this, the way that institutions were taking an allocation to Bitcoin mining was they would buy the stock of a company that was trading publicly that was a Bitcoin miner or an Ethereum miner or a data center manager or whatever. So they could get exposure to a Marathon or a Riot or whoever it was that they decided to take a position in as a proxy for owning Bitcoin. And the way these companies were talking about becoming carbon neutral at that time, they didn’t care.

But as the pressure came on for ESG mandates, they started buying carbon credits. Well, that’s not going to work because you’re going to start to see in this year—I’m speculating—that these large institutions are going to start demanding audits, carbon credit audits. And you don’t want to be in a company’s stock that has the risk of a carbon audit because the truth is it’s almost virtually impossible to show and understand the tracking error of a carbon credit versus what you're actually burning in carbon.

So all of the money is quietly moving right now to new mining companies, most of them private, that are going to use hydro, wind, solar, and nuclear power. Because if you use any of those options for mining, there is no carbon audit; there is no offset necessary; you’re not burning carbon.

The majority, or many of the turbine-driven hydro facilities around the world in places like Norway or upstate Quebec or Manitoba or British Columbia or places in the Soviet—you know, with Russia now—they have an abundance of hydro that is not captured.

And I’ll give you an example: One of my biggest investments right now is a facility being built in Norway in a village with three thousand people where they’re partners. We are using new stacks, very efficient mining equipment; we're building out now, and we are part of the community there. We have power at less than two cents a kilowatt hour. Our stacks are remote; however, we're using the heat that’s generated there for hydroponics and fish rookeries, and the stakeholders of that mine are many of the villagers that live there.

But here’s the key to this situation: the institutions that are backing it and some of them are sovereign wealth funds ask me one thing: "Are the coins awarded going to stay on the balance sheet of this company?" Because we’ll be able to own the stock with the proxy that we know every coin was mined sustainably under an ESG mandate, and that’s how we want to own our Bitcoin.

If you’re telling us you’re going to sell off your coin, then we’re not investing. We want to—you need more capital to come to us; we’ll invest, but every coin awarded has to stay in the Norwegian company or whatever we’re doing. We’re doing the same thing in Quebec; we’re doing the same thing in British Columbia and other jurisdictions in Texas.

That’s the new mentality that’s happening right now. So a new generation of Bitcoin miners, an ESG compliant, non-carbon credit institutionally backed—those are the new miners, and they're going to trade at a premium. All of the old dirty miners are going to have to consolidate because nobody’s interested in giving them capital anymore; there’s no way for them to be clean and not be subject to carbon audits.

This is going to be controversial; you’re one of the first people I’ve been talking to about this because this just emerged in the last three months. But we are quietly taking our capital out of those dirty miners into the new clean miners, and that’s the new generation of Bitcoin miners for the next 20, 30, 40, 50 years.

That makes me so happy to hear! Yeah, about that. Like, you know, I always—I have that guilt inside me of that Osha every time I exchange it or trade on it; I’m being a part of the problem. But that’s just amazing to hear. And yeah, my brain is overloaded with information right now. Kevin, how do you keep that in your head all the time? My god!

Because it goes back to what we said earlier; I listen! I listen two-thirds of the day. I listen to the institutions; they tell me what they want, and they want ESG. They do not want to spend another dime in a dirty Bitcoin miner. Those days are over. And so this change in capital is going to happen really fast, and there’s a lot of capital interested in clean mining.

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