O’Leary Ventures Chairman Kevin O’Leary joins Yahoo Finance Live to discuss crypto regulation, crypto crackdown pressures, investor sentiment, the collapse of FTX, the recent wave of AI interest, and how U.S. businesses can take advantage of the employee retention credit.
BRAD SMITH: US lawmakers on the Senate Banking Committee are meeting with academic experts today to discuss why financial-system safeguards are needed for digital assets. Here to weigh in on regulation for crypto as well as risks and opportunities in the space is O'Leary Ventures Chairman Kevin O'Leary, commonly known in the streets as Mr. Wonderful. Great to have you here in studio with us.
KEVIN O'LEARY: Thank you.
BRAD SMITH: First when you think about some of the regulatory hearings that are going to be taking place in the foreseeable future now until we get some borders for the crypto landscape to operate, what do you expect to not just come out of the discussions but then timelines for actual movement on this front?
KEVIN O'LEARY: So let me give you what's changed over the last few months on the Hill. You know, prior to the FTX collapse, every week there was another crypto company blowing up and going to zero. But now they're getting really large in terms of how much capital is being gone. Just last week, Genesis filed again. This will continue over and over again, and so they'll keep going to zero because there's absolutely no guardrails in this industry.
However, what's different now is-- and I spoke to the senators at the FTX hearing after we'd finished them, and there was a chance to just get a feel of the tone of Washington. There's a fatigue coming into their thinking. They're tired of having hearings every six months when the next crypto company blows up and goes to zero.
BRAD SMITH: Does that mean we just get rushed resolution now?
KEVIN O'LEARY: I think that's what's going to happen. The heavy hand-- and Gensler gave you that tonality last week on staking. He made it damn clear that he doesn't like it, and on the Kraken deal he said, we just shut it down. Now if you don't hear-- read the room, everybody. Just look what I did. I shut down staking. Now, that takes the value of cryptocurrencies down a lot if they can't be staked.
So this is the kind of environment we're in. The industry was unable to self-regulate itself. And, you know, let's be honest. Every human heart has greed in it, and we are given the opportunity to issue worthless tokens with no guardrails. And, you know, the BNB and the FTT tokens, those are worthless. And of course these exchanges are going to go to zero because at some point somebody calls the cash transaction back to USD.
So right now take, for example, BNB, $64 billion of market cap. The only reason to own that token on Binance is to get a discount on trading fees. What's the intrinsic value of that token? Nothing. It doesn't give you access to the equity of the company.
Now, if you go look at the wallets, there's only two wallets that have 97% of all of those tokens. I wonder who owns those. What happens if one of them says, I want cash? Does Binance have $34 billion USD of cash? I don't think so.
So my whole point is these things will keep blowing up over and over and over again. And finally, the senators are saying on these committees, we're done. Let's put the heavy hand of regulation down, and that's probably a good thing long term.
BRIAN SOZZI: Kevin, last-- I'm sorry. Kevin, last time we talked to you, you were very fired up. You had skin in the game with FTX here. Where are you at in the process of getting any of your funds back?
KEVIN O'LEARY: The narrative now is back-- has now, you know, taken away from the focus on the alleged fraud because that's just going to go through the courts and take seven or eight years-- who knows-- towards recovery. So since we last talked, we know of a $4.2 billion pool that supposedly the Bahamians have-- supposedly. We know of a $1.2 billion pool of assets, maybe cash, that FTX.us has supposedly. We know $400 million of cash cash somewhere.
You add that up. There's a lot of shareholders and account holders saying, OK, everybody, let's talk about where this money is. And what everybody wants right now and putting the real pressure on John Ray is to say, look, turn on the exchange again. Gate it so no assets can leave it so that each account holder can see what they have or had and see the transaction records, which we still don't have yet. And it's supposedly again rumored it's all backed up on AWS at Amazon and can be turned on in a moment's notice-- alleged so to speak. So we don't know.
But the litigation is piling on. There's a thousand lawyers that are going to make a lifetime living off this thing. It'll go on for a decade or more, and, you know, let the pieces fall where they may.
JULIE HYMAN: Do you have any money anywhere left in crypto?
KEVIN O'LEARY: Oh sure. I re-established positions, and what I did is I moved it all up to a regulated exchange up in Canada because there are no regulations-- I'm never putting my money into an exchange that is at war with its regulator or being litigated by its regulator or doesn't have any regulation. So the only order I know of in North America that's working is the OSC, which is allowing broker-dealers and exchanges to operate under a legislated order.
Now, it's very restrictive. There's only 34 tokens allowed. There's very limited staking. But it's audited by the auditors and the government every month. There's no co-mingling.
So I moved on assets up to Bitbuy. It's actually a company that's trading publicly called WonderFi. I own a huge piece of it. But it's safe. So I've re-established six positions now. And, frankly, it's one of my best-performing assets since January 1.
JULIE HYMAN: Well, FTX was performing well until it wasn't, and FTT was performing well until it wasn't. Like, what's your takeaway after what happened with FTX? What was your lesson learned? What are you going to avoid doing? I mean, yes, it was a fraud, and they were taking pains to not reveal what was going on, but what can you as an investor do?
KEVIN O'LEARY: What gives you any confidence to put your assets in any exchange anywhere that isn't regulated? Because--
JULIE HYMAN: Well, what gives you confidence to put-- I mean, even if it is regulated?
KEVIN O'LEARY: No, that's different. That's like saying are you willing to trade on the New York Stock Exchange? Yes, I am. There are rules. NASDAQ, yes I am. There are rules. The regulator sees every transaction. It's a mark to market in every case.
These exchanges are no different than those. There are rules already established that exist for the New York Stock Exchange. Why not apply them to a crypto exchange?
JULIE HYMAN: An asset on the New York Stock Exchange can still go to zero.
KEVIN O'LEARY: Of course, but that's diversification on individual names, but the whole exchange doesn't go to zero. That's my whole point. And so I'd like to see these rules.
Now, let's talk about what's on the Hill because you brought that up. Senator Loomis, you know, is now moving that bill forward again. Toomey was the senator that was pushing for regulation on digital payment systems. Now it looks like Hagerty is going to pick up the baton, if you want to call it that, because Toomey is retired January 3.
But the point is you're seeing these hearings. You're going to see more of them. And every week we're going to be talking again together about the next thing that went to zero because there's plenty of zeros coming to a theater near you until we actually force regulation on this because who wouldn't make a worthless token?
I mean, think about it. What do you need a token for that's supposedly ownership in the exchange? You're not allowed to do that in a bank. You're not allowed to do that in the New York Stock Exchange. If you want to buy a piece of the New York Stock Exchange, buy the equity of the exchange. The same thing should be for any exchange anywhere. That's the deal.
BRAD SMITH: As part of that regulation and as part of the hearings, we're going to hear about the endorsements that took place with companies like FTX and exchanges. You had previously revealed that you had a $15 million payment as part of the FTX endorsement.
KEVIN O'LEARY: $18 million.
BRAD SMITH: $18 million payment as part of that. Do you believe that as part of the proceedings that crypto promotions or endorsements should also be banned?
KEVIN O'LEARY: I don't think that's going to happen. People advertise regional banks. People, you know, advertise money-center banks. I think you're allowed to market your services, but obviously all of the people involved from, you know, Tom Brady on down had no idea of the alleged fraud that was going on. They wouldn't endorse that, and that's intuitive. That makes sense.
So there's going to be a lot of frivolous lawsuits with contingency lawyers. I get that. Absolutely going to happen, and that's probably a way of cleaning it out, but it's not going to change the way financial services are marketed. You see that on television every day. But I think what it does do is change the regulatory environment.
And remember, there's one attribute to an exchange that is very, very valuable and why the golden ticket would to be regulated by the SEC or whatever the US exchange regulator is going to be. In order for you to transfer your fiat currency in any jurisdiction-- let's say you're in Belgium or in London in the British pound or in Zurich and the Swiss franc. You have to be regulated to be able to do that so that you can take it out of an account in Swiss francs and transfer it to a broker-dealer exchange that's crypto.
The Swiss aren't stupid. They're going to regulate that. The Canadians have already done it. At some point, there will be a passport system around the world that if you want to trade globally on all these different geographies and get access to their banking system, you're going to be regulated. Everybody's waiting for the US to set that up, and that's why these hearings are very important.
BRIAN SOZZI: Kevin, you're also really plugged into all things tech. And since we last spoke, we've seen a real meteoric rise in all things AI stocks. Do you think this is a bubble? Have you used ChatGPT, and what do you think of this technology?
KEVIN O'LEARY: Great question because as we speak even this morning, I'm trying to make up my mind on the allocation to this next round on OpenAI. Very fortunate to be offered to take down some equity, but it's a $29 billion valuation with virtually no revenue. So I'm choking on it. I'm looking at it.
And yet within our own shop, in the last 90 days, we are using a third of our search time on ChatGPT instead of using Google because it's scraping the internet for us. And we do a lot of research on deals, on people, on companies, on goods and services. And so now the team, on their own, is just-- now that they know how to use ChatGPT-- and for the very first time, I noticed an expense report last week where somebody put on the $20 a month. And so I said, what's with this? She said, look, boss, the thing is always down. There's a hundred million people a day taking it down. It's jammed up. At least when I pay the $20, I can get online and do the work for us.
So I said, wow, they're getting revenue all of a sudden because they're so popular-- they assumed they were going to get a million downloads a day. They're getting a hundred million a day. Now, tell me that's not killing Google, and it is.
Google's got an advertising-driven model. You don't advertise on ChatGPT. You don't need to. You don't need to buy your search results. So it's going to be a really interesting changeover.
But my take is we'll probably add a 1% weighting into ChatGPT in the portfolio that should hold that, although I'm holding my nose on valuation. I'm choking. This is so not Mr. Wonderful valuation. Like, I should be getting a royalty deal on this thing.
BRAD SMITH: Well, I imagine you'd be a little bit more upset if they started expensing some of their Twitter Blue verification marks as well.
Just while we have you because of the adventures that you've invested in, all of the different companies, a lot of the economists that we've spoken with are putting in their base case a mild recession right now. Of the companies that you've invested in, is there a percentage that you don't believe would make it through a mild recession?
KEVIN O'LEARY: No. You know, I have to tell you that what's going on in companies with 5 to 500 employees right now. That's 62% of the economy. We're really struggling in terms of what we should do for building inventory for the next two quarters. We just don't know what's going to happen.
And so we need to be in stock to have sales. But everybody keeps telling us, including the Fed, we're going into a mild recession, but we don't see it yet in our numbers. So the real dilemma is how much capital do we tie up in inventory?
And so the reason I bring up that number is I want to do a quick segue into something I discovered since I last talked to you guys that I'm all over now. No one knows this, but during the PPP plan-- do you remember the PPP? We took that down to the Bank of America, lots and lots of it, and we were told that there was something called the employee retention credit, which we can't apply for if we took the PPP. I didn't know in the middle of 2001 they changed the law. Because it was so bad the recession that was potentially going to occur during the pandemic they said let's open up the employee retention credit.
It's 170 pages that program, very complicated, but it pays up to $26,000 per employee that was on a W1 or W2-- or sorry, W2 in 2000 and 2001. I'm urging every company in America to go figure this out for themselves because that money has already been thrown out of the helicopter waiting for you to pick it up.
And so for all of my companies who are applying-- and I've set up TheWonderTrust.com for anybody that wants to learn more about it. Just go there. You have to hire an expert to do it. You need an accountant, but is it worth it? Oh my goodness. I mean, if you have 70 employees, your check could be $1.1 million, and you can put it right back into the business-- not debt, no interest charges, no costs. You don't give up equity. The government wants you to have this money. Go get it. This is my number-one mandate for the next 25 months.
BRAD SMITH: We're going to see which of the small businesses and businesses out there heed the call as well. O'Leary Ventures chairman Kevin O'Leary joining us here in studio at Yahoo Finance. Thanks so much, Kevin.
KEVIN O'LEARY: Thank you.