What China's Ban of Crypto Means For Investors | Meet Kevin

I want to get started right away. So, uh, I want to start with cryptocurrencies. Obviously, Bitcoin has been running. We've crossed that 60,000 psychological threshold. NFTs are all the rage right now. Crypto Punks, we've got many other NFTs as well.

Uh, Jordan, I want to start with you. Where do you fit in? Like, how do you explain what the heck it is that you do to an average person when you're at a party, like a kid's birthday party or whatever? How do you possibly explain to people what cryptocurrencies are and what it is that you do when 68% of hedge fund managers don't feel comfortable enough to invest in crypto because they're clueless about it?

Jordan: Yeah, so first, thanks for having me, Kevin. It's a great question. The way I like to think about it is crypto's like a cap table. There's never going to be more than 21 million Bitcoin. I was part of the founding team of a coin called HBAR, which is part of the Hedera Hashgraph network. There's lots of tokens in the market, but really what makes crypto unique is that it's scarce.

So, uh, the first piece when people are coming into crypto, obviously they want to accumulate as much as they can of the underlying protocols that they still think are going to be here in 5, 10, 15 years. But beyond accumulation, beyond just owning crypto in your portfolio, I'm a firm believer we have an asset management business. We advocate that people have some percentage of their portfolios with exposure to cryptocurrency.

We believe there's so much more. So, what Amiibo Holdings—our whole philosophy—is don't just own cryptocurrency, own the blockchain. And what we mean by that is take exposure to really exciting businesses building in the blockchain space. So there are publicly traded Bitcoin mining companies like, uh, Hut 8 and Riot and Hive that you can take exposure to. Coinbase is publicly traded. Voyager Digital, Galaxy Digital—these are publicly traded blockchain equity plays investors can take exposure to.

So, we're big believers in beyond just holding cryptocurrency, which is interesting and exciting, and I hold some, and I know, uh, Mr. Wonderful here holds some. It's really important to diversify through blockchain equity. And that's, uh, that's what I’ll get at for the cocktail party.

Kevin O'Leary: I gotcha. Okay, so, uh, Kevin O'Leary, I want to know—last time we spoke, we were worried about blood coins in China, essentially with dirty mining and potentially separating clean mining from dirty mining, and how those clean coins could be more valuable. Now, we've seen China essentially exit stage right, and now they've banned transactions and mining in China.

How does this affect your view of investing? Are we now worried still about finding clean coins versus not, or can we just say, “Hey, let's invest money with Jordan into something like Immutable Holdings and get exposure across the board”—maybe even own cryptocurrency directly? Where do you stand on that now?

Kevin O'Leary: Well, let me address the ESG issue because you've brought up three different elements there. So, ESG issues not gone away. It's one of the reasons that major institutions are waiting for a resolution to it, and there is one emerging. And it's simply this: there are many pools of capital being accumulated to develop mining operations in places like western Texas or in the Nordic countries, where they can use a combination of solar and wind to mine coin and provide electricity for the grids in those regions.

And the idea there is along the Hut 8 line that Jordan mentioned—Hut 8. One of the reasons I own that stock is that the CEO there, a woman named Jamie Leverton, has committed to her shareholders that she will keep those coins that she mines sustainably on her balance sheet. So, an indirect way for me to own the coin, knowing with certainty it passes my compliance committee that is looking at ESG issues, sustainability issues, ethics issues—and no different than many large institutions or sovereign funds.

And indeed, her stock trades with the volatility of Bitcoin, so it's an indirect way of solving that problem. And there's at least four or five other projects—one of which I'm getting involved in—that's going to mine sustainably in western Texas. So that I think resolves itself for the next 30, 40, 50 years, and so we'll see more and more institutional involvement.

China was forecasted—I mean, they're trying to keep centralized control there, so Bitcoin doesn't fit into their world, nor does just crypto. And they're trying to launch their own digital Chinese currency, of which the chance anyone else is going to own that is zero. So, they're in a bit of a squeeze box there because in order to mine the efficiencies and productivity that decentralized finance promises and cryptocurrencies promise to reduce friction and cost and be a global solution for a lot of financial services, you got to be part of it.

So, if China wants to just do their own thing, that's fine, but they won't get any participation from anybody. I mean, the reason I would never own that coin is I don't know who's watching, and I'm pretty sure it's going to be the Chinese government. So, why would I let that happen to any of my assets? So, I think they're going to get a lot of pushback, and I'm just one voice, and I'm sure they'll come around at some point.

Now, regarding owning Immutable, my attitude about owning crypto and the whole sector is I have a discipline of diversification. I'm forced by mandate here to never have more than 5% in any one stock—this is on the equity portfolio—or never more than 20% in any one sector, and there's 11 sectors in the S&P 500. I consider crypto to be the 12th sector. It hasn't been deemed that yet by the S&P, but it's coming.

And so, my view is, how do I get diversification? Well, Jordan's company, Hold, as the symbol, I'm a shareholder—is diversification. It's a series of assets on the chain, so why wouldn't I want that? To me, it's just I'm investing in software—productivity software. I invest in Google. I invest in Microsoft. Why wouldn't I invest in Immutable Holdings? Same thing, they're all the same to me, and that's how I'm going to trade it.

Now, would you end up, uh, Jordan? I want to ask you, when you're investing in various different blockchain technologies or miners, how are you balancing how much you're putting into miners versus, uh, let's say altcoins or blockchain tech?

One of the things that I also notice is—sort of a follow-up—and I want to actually hear an answer from both of you on this—is I noticed that with crypto miners, uh, they a lot of their value is in that they're holding a lot of their own cryptocurrency. They're holding their own Bitcoin, for example. I interviewed the CEO of Hut 8, and she talked about how grateful they are that they are hodlers of Bitcoin. But you're paying six to seven times the market cap of the actual Bitcoin they're holding, so you're putting a lot of trust in that technology infrastructure they have on actually mining Bitcoin.

So, I want to see how do you both value this? How do you value the Bitcoin miners, and how do you value these different blockchains you're investing in? Like you said, Jordan, you got to find the ones that are going to be here in five to ten years. So, I want to start with you, Jordan, and then we'll go to Kevin.

Jordan: Yeah, so beyond just accumulating crypto, what we—Bri and a lot of people have made a tremendous amount of wealth just accumulating cryptocurrency and are sipping Mai Tais on probably beaches not too far from the one I'm close to right behind me—but beyond doing that, there's a really great investment approach.

And we put this together. This is our operating thinking at Immutable Holdings, which is what are some of the businesses that we could build that extend awareness, access, and adoption of blockchain technology and digital assets that are native to them? So, you're absolutely right, Kevin, people can take exposure to public equities that have indirect exposure. You can buy MicroStrategy stock.

Michael Saylor has a huge amount of Bitcoin on his balance sheet. There's a website called bitcointreasuries.org, which actually publishes a list of publicly traded stocks that have Bitcoin or crypto assets on their balance sheet. And yes, you're going based on multiples, but for someone that doesn't know or isn't competent in managing a public-private key pair, that's a really great alternative to actually owning crypto.

At Immutable Holdings, we're doing something very different today. We actually don't have cryptocurrency in our balance sheet. What we're building are profitable businesses—our breakout blockchain brands like NFT.com and 1-800 Bitcoin. We're building businesses that bring our awareness, access, or adoption to the space.

So, to give you an example: 1-800 Bitcoin, it's a toll-free number. We're going to provide mass-market education to people who call that number and provide them with Bitcoin master classes and research products. On the NFT side, we ourselves are adopting underlying blockchain technologies, and on the asset management side, we're helping family offices and high-net-worth individuals that don't want to hold crypto native. We help them take exposure to funds that give them that exposure in an indirect way, and we make money through management fees.

So, we are a diversified way to take exposure to the entire sector. Again, I would advocate that yes, crypto is an interesting part of that part of your portfolio—either holding it directly or indirectly through the Bitcoin miners or some others. You will certainly pay a premium if you go that route, as you're pointing out.

But really diversifying and owning businesses—Coinbase is going to make money whether the price of Bitcoin is going up or going down; they make money on volatility, they make money on fees. That's what we mean by own blockchain equity, own businesses that are going to do well in a bull or bear market cycle.

Kevin O'Leary: Okay, and Kevin O'Leary, what do you think? Why perhaps a fund that's going to expose you to miners, uh, where you are paying a little bit more of that multiple as opposed to just maybe holding the coins directly?

Kevin O'Leary: Well, the expectation, um, when you own the equity of the company is that it will become more and more efficient at mining coin, and it'll get to do a better job at doing it—and perhaps do it and wear a lot of value in a sustainable way.

I cannot own coin where I don't know the providence because I also have to serve institutions that are not allowed to own coin that isn't sustainably mined. They have sustainability committees. We haven't resolved that yet. So, rather than get myself in a conflicted situation, I put the value in owning the Hut 8 stock, and I've been buying her stock for a while now.

So, you know, in times of bear markets, it traded as low as six dollars, and now I think it's 14, 15, and that just reflects the price of Bitcoin's appreciation over the last 90 days. And if the coin goes down, so will her stock. So, but no one questions my owning that equity—they understand that she has been mining sustainably since she was awarded her first coin.

So, there's value there. She's also just recently raised another 150 million dollars. I don't know what she's going to do with it, but I'm going to assume she's going to use it accretively because she's a good manager, and I'll benefit from that as a shareholder. My whole point is I don't need to own Bitcoin natively only; I can own it in other ways, and I do own some native coin that I know with its providence.

And so, for me, I don't need the resistance and the headache and the compliance officer barking at me. I don't want that stuff, and I don't need it because I have other businesses that I have to be compliant in all the time. So, I'm no different than many other institutional clients that are concerned about this issue.

So, there's value in many different ways. Same with what's going on with Immutable. I mean, there's—I have no, everything there is compliant, so you wouldn't believe how powerful this compliance committee is becoming in so many giant institutions.

That's incredible. I want to know from both of you. Uh, NFTs—I know Immutable does a lot of work with NFTs, even NFT gaming. Uh, or yeah, we're in the NFT gaming space. How do we see NFTs evolving over the next five to ten years? Is this something that is like the 2000 tech bubble, or is this something that has lasting staying power? And what makes NFTs different? How should somebody getting into NFTs value one NFT over another?

Jordan: Start with you, Jordan.

Jordan: Yep. So, Kevin, for your internet native, you're spending a lot of your time on the internet. I've been watching your videos for years now. For the generation that's internet native and spending an increasing amount of time online, the concept of buying an intangible digital item is not a foreign concept for them.

You've got kids that have been buying in-game swords or currencies in games like World of Warcraft or RuneScape. When I was growing up, I actually used to sell RuneScape gold points until the makers of the game said, “Hey, stop doing that; that's our intellectual property.”

Secondary markets have been forming around MMORPGs—massive multiplayer online role-playing games—and Second Life was one of the first to actually—and Kevin mentioned compliance—get money transmission licenses state to state. Actually, Second Life still, to this day, has money transmission licenses in all 50 states and three territories. They have a currency called Linden Dollars, and they've been the market maker essentially selling Linden Dollars and land inside of that business.

So, those are NFTs to some extent. We've got games like Upland, which is an NFT game where you can buy Islamic inside of it. What we're seeing happen in NFTs right now is manifested in the form of art—these JPEGs, these GIFs, these memes that are going viral: Board Apes, or Crypto Punks, or Women of Wonder—these collections are incredible, and people are starting to figure out how to create utility for a photograph, for basically a JPEG, a piece of art. We're starting there.

There's no doubt that—I won't say where we are in the bubble, if we are in a bubble at all. I think a lot of people on crypto Twitter will chew me out if I comment on that. But what I will say is that independent of where we are in the market cycle, the opportunity for NFTs is so much more than just art and intellectual property.

What literally everything we have a value in the physical world, whether it's the title deed to a piece of property like the office I'm in right now or whether it's the authenticity certificate to an FP Journals or protect the leap that Mr. Wonderful wears on his wrist on a Shark Tank episode, quite literally everything we own a value in the physical world is going to be represented in this digital world in the form of a token.

And that, given the amount of time and the increasing amount of time that we're spending our lives digitally online, we've got things like blue check marks that say, “Know that this is an influencer. This is someone of credibility. This is someone who's on Shark Tank.”

Given how much value we put in these intangible items, an increasing amount of capital and value is going to be stored in this energy economy. We’re really proud to own NFT.com; we absolutely are building ways to onboard new people to the NFT ecosystem to help both creators and collectors capitalize in this new world, and we think marketplaces are a great start.

So today we've got millions of users in the NFT ecosystem. Coinbase has got 68 million users that they just announced they have. We are very much at the beginning of NFTs—very excited about what the future looks like.

Kevin O'Leary: Jordan just mentioned the crypto community and, uh, you know, mentioning that if we touch on the potential downsides that there could be backlash in the crypto community. Kevin O'Leary, do you ever feel like, uh, you can't say anything wrong about crypto without being attacked?

Kevin O'Leary: Yeah, it's a very vocal community, and that's okay. It's, you know, a lot of the people that were the early founders feel they have a proprietary relationship with the community or with the assets themselves, and that's okay too. But if you really want to see Bitcoin at a million dollars a coin, this has to be ubiquitous across all different buyers—whether they're involved in crypto today or not.

And the potential to get there—and even see Bitcoin at 100,000 by year-end—is going to be an expanded market. So, you know, my view is there are many, many, many people that have not yet participated in crypto that over time will become more comfortable with it.

Certainly, Gen Z is very active there, Millennials, and as even some Baby Boomers now see it as a store of wealth, and they're allocating some portion of their net worth to it. But at the end of the day, you know, I look at it and say to myself, what drives value in a market is disruption and enhanced productivity.

And so, if you believe you can get that out of cryptocurrencies or decentralized finance, it will create value. And you heard a use case that Jordan just referenced around watches. Let me give you some more metrics to that because I'm very involved in the protocol to develop a standard for watch NFTs.

Every year, there are 20 billion dollars of transactions in new and used watches. They trade from one hand to another; they move from one state to another. When you have a very valuable piece, such as a Patek Philippe, or a vintage Rolex, or an FP Journe, which is probably the hottest watch in the world right now, before you purchase it in the secondary market, you have to get it authenticated because you don't know with certainty that it's real.

Maybe it's being held at a dealer in Hong Kong. You have to get it in bond all the way to New York, have it looked at by a representative either the maker or an auction house that has this expertise to authenticate it, send it back to Hong Kong, and then do the transaction. That is incredibly inefficient.

And I've gone through that for decades as I've built my collection, and I'm fortunate to know the world's largest watch collectors. They have the same struggle, the same challenge. Collectively, you know, in conjunction with some of the authorities that oversee horology, we're working together to try and set standards that then we can, on right at NFT.com, start to provide individual NFTs for each collector's collection.

I want every one of my pieces to have an NFT associated with it that authenticates it into my estate. Even my insurance company wants that— instead of having to go through the arduous process of having it photographed and all of the paper accredited, I can have all that encased inside of an NFT and simply send it to the insurer, and I'll get a discount rate if I can do that. That's what they've told me already.

So, there's so many use cases for NFTs, where the physical asset is tied to the digital for the sake of authenticity and efficiency—that's where we're going.

That's incredible. I mean, it sounds like, uh, Kevin O'Leary, you're potentially talking about soon maybe individual investors even being able to invest in a share of your watch on something like NFT.com. Am I going too far on that, or am I...?

Kevin O'Leary: No, no. That's already happened to me. My watch that I wore—the white steel, white face Daytona with the red band—went to auction last year at an extraordinary price, and I only wish that I had the NFT to that watch because I'll never have it again.

Now I'm fortunate; I was able to buy another one, but that watch was on Shark Tank for 12 years. That was the red band watch, and it has tremendous value with fans, and many others have asked me, “Do you have a picture of it?” I can have—so that's what the NFT will be. My plan is to go back to the buyer—it was a charity auction for the One Drop association—and ask him if he would allow us to make an NFT of that because the demand is insatiable for that piece now.

Jordan: Kevin O'Leary just referred to Bitcoin potentially going to a million dollars as we sort of expand how many people get involved in cryptocurrencies, and I think, golly, I mean, if you can invest in Kevin O'Leary's watch via the blockchain, that's certainly going to expand people's interest in cryptocurrencies.

Jordan: How are you folks getting involved? Because I know NFT.com right now you've got coming soon your email address. You've got NFT gaming. You invest in various different public companies. I'm trying to wrap my head around what it is y’all do with crypto. To me, it sounds like you do everything. Can you touch a little bit on the future of NFT.com, and is it true? Are you sort of like a basket of everything? Like forget about a Bitcoin futures ETF; you could have a basket—a little sliver of everything of cryptocurrency with you?

Jordan: The best way to think about Immutable Holdings is that we are very much the first to build the Berkshire—well, we like to get us the Berkshire Hathaway of blockchain. Now, Berkshire Hathaway is a holding company with very diverse holdings that aren't related to any one particular industry or sector, right? They own Geico; they've got large holdings in American Express and Coca-Cola; they own some Apple stock—or at least at one point—and Dairy Queen, right? Nebraska Furniture Mart added to the list.

What we've decided is what if we did what the Interactive Corporation—remember Barry Diller back in the 90s—building one of the first internet rate holding companies with Match.com, Ask.com, Angie's List? This was one of the first internet holding companies around the time of the dot-com bubble.

And there's a lot of strategic synergies between companies, right? You can share accounting resources—maybe you can share a CFO if they're early stage; you can share engineering teams—different ways to build merchant processing and checkout funnels. There are a lot of strategic synergies between building blockchain businesses like 1-800 Bitcoin, NFT.com, and Immutable Asset Management.

We wanted, and today are giving investors exposure to a holding company that's got six subsidiaries. Ranging from—uh, just quickly, the list is CBDC.com, which stands for Central Bank Digital Currency; HBAR.com, which is the symbol of the Hedera Hashgraph network, and network I was part of the founding team of—it's number 35 or 36 or 37 on Coin Market Cap, depending on the day.

We've got an advisory business where we've been brought in—I’ve consulted with the Monetary Authority of Singapore on Project Ubin, launching their central bank digital currency. I've met with, you know, C-suite at Google, IBM, Boeing, Deutsche Telekom on them putting together strategies and how they're working on the space—that's why is our team monetized.

But our core thinking, really, Kevin, is around awareness, access, and adoption. If you want to own crypto, that's amazing, and you can absolutely stop there—like I said—and sip my ties on the beach. But what are the businesses that you could build that make blockchain and digital assets more valuable?

The Winklevoss twins did that really well. After the Facebook settlement, they took 11 million dollars, they dollar-costed it into crypto—not even other costs—they really just bought Bitcoin below 100. Today, those holdings are worth billions of dollars, but they didn't stop there. They could have stopped there—they're not multi-billionaires, but they built Gemini, a compliant and regulated cryptocurrency exchange that is a fiat-to-crypto on-ramp that has millions of users, and that made their own holdings more valuable.

So, when I say accumulation, accumulation is great—that's the first A—but the last three As are awareness, access, and adoption. For us, that's 1-800 Bitcoin—building awareness, helping make Bitcoin and blockchain a less intimidating subject, building on-ramps, access, helping people access in a compliant way these regulated crypto markets, and adoption. We ourselves are young native platform builders building platforms native to many blockchains like the Hedera network, like Solana, like Ethereum, and NFT.com aspires to get lots of users and have them use blockchains in some cases not even know that they're using it.

So, you know, you spoke about a million dollar Bitcoin—that is absolutely within the realm of what's possible here just given, one, I think where we are in the adoption curve. If you look at the adoption curve of Bitcoin versus the adoption curve of the internet, we've got to be in 1994 and 1995 just in terms of sheer number of people that are on these networks.

The actual adoption curves, if you look at the charts, are quite similar. So we think it's very early. Gold is what, a 10 or 11 trillion dollar market cap? And to take Paul Tudor Jones's words, he describes this in a white paper as even better than gold. So, if it's better than gold, I think we're talking about a market cap even bigger than that.

So, half a million to a million is absolutely within the realm of what I think is possible in this ecosystem.

Now, uh, Kevin O'Leary, I want to ask you because Jordan just talked about Gemini. Gemini has a Gemini coin—a stable coin—and that's, uh, backed by a dollar and a bank account somewhere that's FDIC insured. But a lot of folks who hold the Gemini coin do so so they can earn yields five, six, seven, eight percent on their stable coin, and they see this as almost a high-yield savings account.

But a lot of them aren't familiar that when they opt into that sort of, uh, yield, what they're really doing is they're lending out their coin. And so concerns have come up that how many times are these Gemini coins or stable coins being lent out, and if they're being rehypothecated over and over and over again, is there a potential that the crypto market is 10, 20x as leveraged as traditional finance, or is that not so much of a concern? Kevin O'Leary, what's your take on that?

Kevin O'Leary: No, I mean, you're raising an issue around stable coins. There are other stable coins—obviously USDC included, Tether. The regulator has spoken onto this issue just only three weeks ago regarding the concept that stable coins are, you know, being treated like money market funds.

When you, for example, sell your stock in a traditional brokerage account, very often you're swept into a money market fund while it waits in cash, and maybe you're yielding today 23, 24 basis points, but that is backed by dollars and very short duration government credits in most cases.

And the same issue is being debated around stable coins. And so what I anticipate happening—because you're right, the reason that—let's just take USDC, one that I'm more familiar with because I actually use it corporately at CR, you know, managed by Circle. They've been growing 10x every year. They started with 100 million, and today, there's over 30 billion dollars worth of USDC, and yet it hasn't been adopted institutionally yet.

There are some high-net-worth family offices, hedge funds that do stake it or lend it, as you suggested, and the current yields on that are around 5.8 to 6.4 percent. And I know that because I just signed three more stakes this morning, and I'm using the Circle platform to do that. Now, it's not a huge amount of dollars because we're still in the—I was one of the first business accounts that they opened as a pioneer to help get that going, and it took me six months to get my own internal compliance department on board and another two months to get my external auditors to sign my statements so that I could fulfill my obligation to regulators in various geographies where we're using this strategy.

And so we are nowhere yet on stable coins in terms of it becoming an institutional product. The most likely scenario, in my view—and it's a personal opinion—is that Circle, who has the 30 billion, will end up being licensed as a bank and have to comply the same way banks do to their money market accounts. And that would solve a lot of problems.

It would allow me to go to a full weighting of USDC. Right now, to get it through my compliance, I have to treat it like a stock. It's not a stock; it's a proxy on the US dollar. And yet, I can't get my own compliance people to agree. So, we're very nascent in this process—very, very early.

But the fact that I'm going through all of these headaches is because you're right: I can make six percent, and I can't do that anywhere else. And I have to make something over 2.1 because that's inflation, so there's a lot of interest here.

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