Bitcoin falls below $43K as China calls crypto transactions illegal

Ross Gerber, Gerber Kawasaki Wealth & Investment Management CEO, talks about the effect of China calling crypto transactions illegal.

Video Transcript

Good to chat with you again today. Man, it's been a while. But when we look at it, we keep hearing from Bitcoin. Bulls crypto, bulls. That you just want to buy the dip. And we've seen China crackdown before. So how are you digesting these headlines and kind of your confidence still in the sector?

I mean, this is great news for Bitcoin. The last thing we want is China involved with a currency of the world. I mean, if they were smart, they'd be buying all the Bitcoin. And that was kind of like what China was trying to do years ago, was really actually like corner the market in Bitcoin by having all the miners be in China. So now they've reversed course because Xi is in really just a desperate attempt to completely isolate China so he can control it. And so he doesn't want Bitcoin, as he's about to release the Chinese version of the Bitcoin.

Because really China is in the business of tracking now everything everybody does in China. It's the least fun place in the world. It's the most repressive, newly repressive country in the world. And it's really a big step back for China and the Chinese people. So the only people that should be scared is China, for isolating themselves from what will be the future global monetary system.

- It is interesting, though because you have the Fed experimenting with their own digital dollar here, as we've seen, Boston, the Boston Fed President kind of running point on that. And you wonder how that might look if we have the digital dollar here but also let people keep cryptocurrencies, how it might work if China is really focusing on their own. What it's going to look like on the global stage here and maybe I guess, if it puts more pressure on regulators to crack down now back in the US.

ROSS GERBER: Well, there's no value in the digital dollar because the dollar is already digital. I carry cash. I'm one of the only people in America that carries cash. I go into a place, I try to use cash and they go, I can't take it. So the digital dollar exists today. It's called Apple Pay. Whether that's a formalized process from the Fed or not, doesn't really matter. I trade billions of in stocks and also my fund, GK, we manage billions of dollars. It's all digital.

So I think the real issue is about control and what governments don't like is Bitcoin takes control of people's monetary futures away from governments and in the hands of the individuals. And that's exactly what's happening in scale globally right now. Because at my firm, we're the only IRA that opens up Bitcoin accounts for clients through Gemini and the demand is unbelievable. And the amount of money that people have in dollars and other assets relative to Bitcoin, is still 99.9% other assets. So when you really think about even a 1% allocation to Bitcoin for the average investor, would bring Bitcoin up probably five or 10x. So there's just a huge upside opportunity and it's being adopted globally. And that's just what's happening and it doesn't matter what any government says or does.

- Yeah, I mean, we've seen to some tech firms out there who have said they don't want to work with China, have still enjoyed pretty good success. So you're just kind of putting that into context. A lot of people are worried what might that mean if China is just not involved. Michael Saylor of course, leader of MicroStrategy, who's put billions in, tweeting out today saying that there's nothing has created more wealth in the past decade than technology is banned in China, I thought that was kind of aptly fitting.

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ROSS GERBER: Right, right.

- But we'll shift away from that for now because there's a lot that you're also watching in the gaming space. We've been talking about that as the NFL season kicked off. DraftKings. I know that's when you watch a lot, MGM. What do you make of--

ROSS GERBER: We're long MGM, yeah.

- Yeah. What do you make of the growth opportunity there still, as competition heats up?

ROSS GERBER: Well, this is an incredibly interesting time. I've been into online gambling because my fund, one of our themes is things that used to be illegal. And so online gambling is one of our main focuses of growth over the next five or 10 years. So that being said, we only own MGM because I thought it was the best overall play on Vegas and the recovery, as well as BetMGM. And I felt for so long BetMGM wasn't getting the valuation it really deserved within MGM stock because it was a joint venture with GVC, which is Entain.

So MGM tried to buy them earlier this year and failed because I think Entain is not dumb and they understand the value of their assets. But now DraftKings, so football season starts and everybody starts betting and it's FanDuel, DraftKings and BetMGM are the top three. Barstool and all the other apps are well below these top three. So DraftKings is spending a fortune to get every customer, while MGM doesn't have to do that because they already are a casino.

So I think DraftKings felt like if we take our overvalued stock and buy something with real solid assets and even overpay, it doesn't matter because our stock is so overvalued. And made a big bid for Entain. But they need MGM's approval for this and I just don't see BetMGM going to DraftKings. So then the option might be to spin this out as a public vehicle, which would be huge for MGM. And we're seeing MGM continue to move higher. We were aggressive buyers of MGM actually, even though we're long MGM this week. I think there's a lot of value to be unlocked.

So this is a very exciting time for online gambling we see lots more consolidation. I think Penn Gaming is another target potentially. That would be a great asset. I think it's a fairly valued asset now and for what they're paying for Entain, it makes a lot of sense to jump on that company. And as well as many of the smaller companies, I think, are still in play. So we're going to see consolidation. And this is an exciting area for investors and it's a major focus of my fund at GK.

- Yes. So seeing a bit of a win-win there, no matter what happens for MGM. But we've also seen China crack down-- we're talking about Bitcoin, but we've seen the crackdown on the gaming space as well. It was interesting to see everything kind of slide off of that. I mean, when you look at the space in China exposure, when does that maybe make you even more bullish I suppose, on MGM and how does it break from the competition, Sands, everybody else, who has a rather large presence there?

ROSS GERBER: Yeah, so we took a deep dive into Sand and Wynn recently because of the stocks are down heavy because of the Macau issue. I've been investing in gambling and casinos since like '89 when the Mirage came out. So I know this industry probably better than anybody. And so one of the things is, so Las Vegas Sands has a ton of exposure in Asia and that's why the stock's down so hard. Not to mention Adelson died and they're going through this transition.

Well, Wynn is really just a mismanaged company with great assets. So Wynn is attractive from the sense of you get Vegas and Macau on an equal level. But what happened was, these casinos companies sold half of their ownership to Chinese investors, like it's MGM China. So actually, if China hurts Macau, it's kind of like cutting off their nose to spite their face because they actually own the majority of Macau.

So I suspect that everything is going to go through much smoother than what people think right now because there's just so much money in gambling for the Chinese government that's in on it. And I think cracking down on gambling is more talk than action because we know how important gambling is in the culture of China and in their leisure activities. And we expect Macau to recover pretty nicely over the next couple of years.

- And if they can't gamble on Bitcoin anymore, they're going to go back to the casinos, I suppose. But when we look at maybe one of those opportunities, I'll point out MGM up more than 100% over the last year so we'll give you that. But on the flip side, there might be some people watching, who have watched me, who have watched you talking about cannabis all the time. And if they bought the top back in February, they'd be off by about a third. But you're still bullish. You still like what you're seeing in the cannabis space. I tend to see kind of the tax upsides if we finally get changes at the federal level. But what has you still confident that that whole sector, its best days are behind them?

ROSS GERBER: So cannabis is also another sector in things that used to be illegal that were invested in GK in. So when you think about, we started with cannabis long ago so for us, we look over the last year, so pre-election to today, we're still up substantially on cannabis. Although we've given back about half those gains. So for investors who are looking at the long game, this is a huge opportunity because the players in cannabis have only gotten stronger over the last year. The numbers that I've looked at for the quarter, the most recent quarter, have been amazing. And they're very well run companies that are now trading at multiples that look very reasonable for their short and long term growth rates.

So we're very bullish on cannabis. I'm very close to pulling the trigger and adding to these positions right now, aggressively. Because I do think that biggest issue is legislation and the fact that Democrats really can't get anything done. I mean, they're really proving inept, disorganized, and basically stupid at this point. Where they can accomplish a lot in this next year to solidify their place in the House, in the Senate for next year, and I just feel like they're botching things like cannabis, which is just a home run. So I actually expect things-- something to get done in the next year. So we're bullish.

- There's a lot of people I think who are invested in them that would want to see that too. And a lot of people who focus in on the social equity piece that would want to see that as well. When you look at though, we showed some US operators there mixed in with the Canadian ones. And I guess there are people who are looking at the slowdown in growth in Canada saying, all right, if that was chapter 1 and US was chapter 2, there are maybe some concerns that you could see growth tapering off here relative to what we saw in Canada, a big boom and bust. Why is that not the case? Why would people maybe--

ROSS GERBER: Zach, come on, man. When's the last time you went to a party with young people, OK? There is no slowdown in cannabis. And in fact, I would argue the opposite. The new products that are coming out from like drinks and edible, some of the new edibles, but really in the drink side of the cannabis business is-- this stuff is booming. We're seeing cannabis lounges now being approved all over. One in Vegas, for example.

But no, the cannabis culture and the business of cannabis is insanely good. When you compare the United States to Canada, it's kind of a joke. I mean, come on. Canada is like probably one of the most boring countries in the world. No offense, Canadians. What do they say? It's like the attic above the greatest party in the world. So like let's be real. US cannabis is probably a $70 to $100 billion market and we just scratched the surface. And when you look at once they are able to market and use banking and have better reasonable tax rules, I mean, these companies are home runs.

- You're going to get me in trouble with our large swath of Canadian viewers here today, Ross.

ROSS GERBER: Like I said, I love Canadians. Listen, I love Canadians. I love the country. But let's be real. America is a hundred times more fun. And they're all down here. So I know it because they're all here.

- I'm going to leave that one there. But no, it has been interesting to see the market size here in the US relative to Canada and what California, I think even in 10x, kind of what we've seen there. So a large runway ahead if you are bullish on it.