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And now let’s move to the speech of Kevin O’Leary about the crypto:
If we had had institutional capital coming in under the market, if they had allocated 50 basis points or 100 basis points to let’s say ethereum or bitcoin salon, a polygon, whatever, you would have had a bid instead because we’re basically under owned by institutions. We have tremendous volatility, and we’ve seen this before. This is not new. You know, it’ll recover eventually, but this is the nature of crypto unregulated. My argument is that this really should get us focused on policy right after the midterms. I’m hoping for policy on stable coins and then into other assets as well. NFTs, that kind of thing.
We’re at the NASA stage but the volatility is because we don’t have the institutional bid. I mean, everybody has challenges with volatility, but I just want to remind everybody to just go back 17 years to a stock called Amazon. It also corrected 38% to 50% every year for 12 years in a row as people tried to figure out what this new entity was. There’s always tremendous volatility in new and NASA technologies and new markets, and crypto is a new market. I still predict in 12 minutes, 10 or 12 years, it’ll be the 12th sector of the S&P.
There’s just too much productivity opportunity here around payment systems and all kinds of other attributes of these blockchain projects that we just don’t yet know what the upside’s going to be. I’d argue this if you go to any graduating class, particularly now that it’s very timely to say this, ask any engineering cohort, you’re going to find a third of the engineers go into the chain. They want to work there. They don’t want to work in the other 11 sectors of the economy. They want the opportunity to create something new.
That’s why you’ve got so much intellectual capital going into this space. You know with certainty down the road that the next genius ideas are going to come from this, any college, any university, any engineer. They all want to work on the chain. There are two categories of crypto companies: ones that use leverage and ones that don’t.
When you have a very volatile asset and you have the fortitude. I’m going to use that word to use leverage to enhance your returns. You also run the dark side downside risk of what happens when there’s a major correction, as is occurring right now. You can get caught offside pretty quickly, and so Celsius is a good example of that. I don’t want this to sound trite, but let me explain how bottoms are made in any market. I don’t care if you’re in equities or in debt, in crypto or in real estate, you always need a big player to go to zero. That always helps, whether it’s long-term capital or whether it’s one of these crypto infrastructure companies. I would like to see this happen, but it always gives you a good bottom when you get a large player over leveraged. That goes to zero, and that always tends to be the beginning of the rebuilding process.
So if you have to sacrifice someone who used too much leverage, it’s always leveraged. It does this because somebody’s over-leveraged positions are complicated. They’re not transparent. They’re not liquid and they go to zero. If someone is out there on the brink of zero, that’s okay. In fact, I’d argue that it’s a good thing when we get it now. Do we get it this week? Do we get it next week? Someone’s going to zero. I don’t know who, but it’ll be great for everybody else that survives, because everybody will learn from that. That’s what I like about a washout event, and I think we’re due for one in crypto land. I don’t know who it’s going to be, but I guarantee you 100% I’ve seen this movie before. You will learn later that somebody put on a heavily leveraged position and got wiped out. It’s good. It’s a good thing.
I don’t use leverage on crypto because I’ve seen volatility like this in the past. There are certain assets where I might put leverage on, but it won’t be in crypto. I mean, when you see volatility of 50% on an 11-month basis, which we’re seeing in bitcoin 60% and 20 days on ethereum, you can’t afford to put leverage on that. But you know, people will learn their lessons. This is a good thing in the sense that this generation of crypto investors has not gone through corrections like this and have not gone through them with leverage. Now they’re going to learn an important lesson. Everybody I know that has survived volatility has had a very important lesson or a date with leverage. They didn’t have a great dance that night.
I must tell you what I think right now. If you’re licking your wounds, go to the large cap projects, such as ethereum, bitcoin, polygon, and solana. The polygon’s been slaughtered. It’s a good project and a great opportunity to add to it. I have very big positions in these names and I’ve been nibbling as well. There’s nothing wrong. The one thing I would tell everybody is that you can’t pick the bottom. It’s impossible. You have no idea when it’s going to happen, but if you’re staying in the category, you need diversification.
I have so many different positions open right now. They’re all over the map now come year end, what’ll happen because this is a year where we’re going to be looking at tax returns on all crypto trading and income? There’ll be a lot of maneuvering on the projects that did not recover to take them as tax losses versus the ones that did. That’s going to be the nimbleness of trading. That’s why it’s important to look at your positions and make sure you have liquidity in them because most of these projects are very liquid, so it’s not a problem. We actually haven’t seen it yet, but we had the Binance story yesterday. They looked for a couple of hours of room for what they called a lazy trade, the Celsius thing. Well, that’s a gate that’s not good, so that will not end well, and when you lock the gate in a hedge fund, basically, you upset a lot of investors, and when they get the opportunity to sell, they do it with a vengeance. It’s never good to do this. I can’t help them, but you know, they didn’t understand the situation, I guess, and there’ll be some money lost there.
Finance is the big daddy of them all on platforms, and they seem to be surviving. FTX looks fine to me. They’re rock solid, didn’t break a buck, put out an announcement to their investors yesterday saying look we’ve to the extent. We’ve had to have margin calls, but there hasn’t been a problem. I mean, these are the things you look for. It’s a stressful situation. You’ve got a lot of infrastructure holding its own, so I think there has been some maturation or maturity coming into the crypto market by these behemoth infrastructure projects. I’ll say the same thing about BitBy and WonderFi: they’re holding their own, making sure their clients are taken care of, and I have significant stakes in both of those companies, so we’re all, you know, weathering the storm. I have to do this because there’s nothing else to do except.
The great news about the crypto economy and even positions like bitcoin and ethereum. These are decentralized holdings. It’s not just the American investors that are exposed here. As you rightly pointed out, Bitcoin is all around the world and it’s only $880 billion before the correction, which as you rightly pointed out, is a big nothing burger. So that’s nothing. I mean, you know, even all of crypto under 2 trillion is still nothing in financial services, so there’s so much upside to the sector when we do get policy. When we get institutional investors of sovereign wealth involved, then you’ll start to see real assets, but you know, if bitcoin went down another $20k, it wouldn’t really matter because it’s spread around everywhere and most of the holdings are not institutional. For all the excitement of bitcoin, there are no institutions yet. That’s the decision you have to make at a time like this when you’re an investor.
I mean, this is an opportunity to say to myself or anybody. If I believe in three years, 36 months, that there will be a policy on bitcoin, do I want to own it after the policy comes and all the institutions start buying it, or do I want to take a chance and live with some volatility now and buy it here at 24 or 23 or 20 thousand, whatever it’s going to go to, I don’t know. If you believe in bitcoin, it’s a buying opportunity, but you can’t guarantee that you’re getting the bottom. No one catches the bottom. It never works that way.
Here’s what I think is going to happen. They’re going to pick one thing, and they’re going to pick one thing and put a policy on that. It’s going to be stable, it’s going to start, and the policy there is going to be pretty clear. They all say the same thing: they want total transparency; they want an audit every 30 days. They want no more than a 12-month duration on any asset holding the coin. So, on average, T-bills will be seven to eight months in duration and backed by US dollars.
That’s the same kind of rule you’re going to find in a Schwab money market or a fidelity money market or any money market fund, with the benefit of all of these systems, once you put the policy in place, having the ability to be a payment system. I would love to see this happen, and the reason I think you’ll get policy makers on both sides of the aisles backing this one thing after the midterm elections is that this guarantees making the US dollar the currency of default in perpetuity.
Once you back the US dollar with a stable coin, everybody’s going to want to use it. I’m not going to use the Chinese one. I’m not going to use the Swiss franc. I’d be worried about liquidity. I’m not going to use the euro. I’m not who I claim to be, and I want nothing to do with Russia. I’m not going to use the British pound. I want the US dollar to be a payment system that everybody else will accept around the world, just like they do for commodities like oil. It’s priced in US dollars. So if we get a stable coin policy, you can talk to any policy maker about this. They get the joke in two seconds flat. It’s so simple to understand. Some of the issuers will become FDIC insured. They’ll be like a bank. Others will say no. In a nutshell, I don’t want to be FDIC. We’ll have a plethora of different offerings all around the same policy. So I can choose. I’ll put some money into the fidelity one. I’m saying the same thing. I put dollars into the Oppenheimer money market. I put money into Schwab’s money market. So the same thing will happen on stable coins now. I just have to wait for the policy. Right now in USDC, the one that’s holding the buck, rock solid 54 billion in assets right through the week, right through the correction, no problem with liquidity. I wrote more contracts this week on it, so look, there are a lot of people interested in making this work. I think we’ll get policy there first.
[This article is a transcription of a video made by Crypto Diary]
Original video: https://youtu.be/UipRB3Vzy5U ]