Kevin O'Leary aims for 7% portfolio allocation in cryptocurrencies

Investor and FTX Ambassador Kevin O'Leary joins Yahoo Finance with FTX.US President Brett Harrison to discuss the growth of FTX and regulation in cryptocurrencies.

Video transcript

SEANA SMITH: Investors are also keeping a close eye on crypto, and we want to take a look at Bitcoin, because Bitcoin under a bit of pressure today-- still holding above 47,000 right now. But we want to get it over to Dani Romero who's joined by two special guests. Dani.

DANI ROMERO: Thanks, Seana. In the world of cryptocurrency, FTX US, the US arm of the world's biggest crypto exchanges, has partnered with "Shark Tank" investor Kevin O'Leary as an official ambassador. And joining us with more on this partnership is Kevin O'Leary himself and Brett Harrison, President of FTX US.

Thanks so much, guys, for joining us.

KEVIN O'LEARY: Thank you.

BRETT HARRISON: Thanks for having us.

DANI ROMERO: And, Kevin, let's start with your deal with FTX. What was your thought process there and why FTX US? And does it solve your compliance problems?

KEVIN O'LEARY: Yes, it does. I don't endorse products or services that I don't actually use. I eat my own cooking. I think that's important. I have been trying to solve this compliance issue with my own internal compliance department, my external auditors, and, of course, the regulators for quite some time now.

The truth about crypto, and the opportunity as well, is that it really hasn't yet been adopted by large institutions the way people think. And the number one reason for that is not lack of interest. They want to allocate Bitcoin, Ethereum, et cetera, and many other tokens, coins, exchanges, whatever-- but they don't have the infrastructure to report into their systems. It's that simple.

When you buy a stock or a bond-- let's say you're running a billion dollar mandate and you want to allocate 10% into a portfolio of crypto, that's $100 million. You don't download an app on your phone and do that. You have to have it built into the infrastructures that marks to market by the second, like a stock or bond does, your compliance department can see your position every second, at the end of the day reports it to your external auditors, they sign off on your statements, and it goes off to the regulator.

There is no infrastructure for that yet. So FTX is the largest and has the most invested in building out what I call institutional grade compliance. So I've been able to do that. I've been able to structure a situation where I can manage now my own portfolio on FTX, and I'm starting to build up from a 3% weighting up to 7% in my operating company by the end of the year. And I'm going to be using FTX to do it.

So I feel very comfortable endorsing this product for what it does, provides as a service, and how it can help someone like me and thousands of other institutional players solve for this compliance problem. It boils down to I get the best service, I get access all that, but it's compliant. And that is what I have to care about first.

DANI ROMERO: And was the deal paid in dollars or in crypto? And I guess what does-- I know you mentioned a little bit about your portfolio, so what does that really look like now?

KEVIN O'LEARY: Well, actually, I didn't want to be paid in dollars. I want the smartest guys on the trading desk at FTX to tell me what I should own. It's that simple, because they get to look at a lot of different products from all around the world. I want crypto.

I want to have an allocation of around 7%. And I don't want it to be just in Bitcoin. That's not diversified enough. So I'm building a portfolio with them now, deciding what I want to hold. And I've decided going forward I'm going to disclose and be transparent on the percentage ownerships of what I own.

And I think that's very important because one of the things I get concerned about as I have millions of followers-- I don't want people to think that I'm buying things and then promoting them. I'm going to disclose what I own, and why I own it, why I think the merits of each of these positions are on a monthly basis.

I'm really, really interested in DeFi. I think it's disruptive, it's going to be much less friction and the costs of all kinds of services-- you know, just my FX costs-- the largest market in the world is currency. When I want to buy a Swiss stock, or a European stock, and euro British stock in British pounds, I've got a trader in front of me clipping me for bips every time both ways.

I detest them-- sorry, those words are too strong-- I don't like those guys and I want to get rid of them. And I'm hopeful over time-- they add no value. They add no value. And that's just one use case of what the future holds for decentralized finance.

And I think FTX is at the fore of all that. And why wouldn't I want to be associated with a player like that? It makes total sense for me. And for me, it's to be that dialogue with the institutions that I talk to every day about how I'm tiptoeing into crypto.

DANI ROMERO: Yeah. And, Brett, onto that point, you know, I know that you're planning on entering crypto, derivatives, and expanding your user base. Where is the company on that?

BRETT HARRISON: Absolutely. So as you may know, recently, FTX US, which is currently a regulated spot cryptocurrency exchange-- we trade around $200 million a day of spot crypto volume on the exchange-- we recently acquired Ledger X, which is a CFTC-regulated derivatives exchange and clearinghouse, which is going to give us the ability, in collaboration with Ledger X and also in collaboration with the CFTC, who regulates derivatives in the US, the ability to offer crypto futures, crypto options, and other kinds of futures and options to our customer base.

And we're really excited about this because, of course, crypto is immensely popular, but not many people know that more than half of all crypto-related volume globally trades in derivative products like futures. And what we want to do is bring that volume onshore onto the US within the regulatory envelope of the CFTC in a way that's available easily, and safely, reliably, and in a compliant fashion to institutions and to retail customers.

DANI ROMERO: And to that point, I mean, are you concerned of any of these regulatory crackdowns, especially that have occurred with DeFi?

BRETT HARRISON: You know, at FTX US, we have found through our many different conversations with regulators-- the SEC, the CFTC-- that their door is open and they want us to walk in through the front door and talk with them about what we're doing, how we can work with him to be compliant with the regulations that they want to create and have already created in many circumstances to bring these products, again, in a safe, reliable way to consumers in the US.

And through those conversations, we found, actually, they are quite open-minded. I think that there's this misconception that the regulatory agencies in Washington just want to clamp down on all innovation in crypto. And it's just not true. What they want people to do is to work with them openly and collaboratively to make this happen.

So at FTX, we're not concerned. We're very excited about these ongoing discussions that we're having with the SEC and with the CFTC.

DANI ROMERO: And, Kevin, you know, what is your thought process in terms of the infrastructure bill, the taxation, the regulatory debate that's going on-- what do you see happening?

KEVIN O'LEARY: I'm actually very pleased that the regulator is getting far more involved. We've obviously had bad press in the last couple of weeks regarding their role with some of the players in the industry. But the truth is innovation is being created through decentralized finance.

They know that. The US should lead that. They should pioneer it. They should lead it. They should invest in it. That's not lost on the regulator.

The best analogy I've used for this is I love to watch Sunday football. I watch every game. I go into my man cave and I watch it. Those players can't play unless they know the rules. They have to know the rules.

There's so many people that want to play but don't know the rules yet. And it's the job of the regulator to provide those rules and the rule book. And they're going to do that. And so I'm very, very pleased at the innovation that's been coming. I know we're going to get it right.

The amount of buying-- you've got to look at it from the upside-- if all of a sudden the rule book was published and the regulator made the rules up from NFT, through to derivatives, to futures, to coins, to change, and all that stuff was settled, then all of a sudden you would have trillions of dollars of buying coming into this market, and that would be great for every participant, and great for competition, and great for services, and maybe I can get rid of those FX traders while we're at it.

So you know, the way I look at it is, this is all good. And just because there's friction, and a little volatility, and some positioning, it's not true that the industry wants to go to war with the regulator. It's far from that. It's like Brett said-- everybody wants to talk to them and find out what the rulebook is so we can play ball.

BRETT HARRISON: Totally agree. This is such a positive sign that this debate is happening in Washington right now. It's definitely shown us that the senators on the floor, they want to be educated about this, they want to craft legislation that helps encourage innovation in the space and responsibility.

We believe that crypto exchanges like FTX US should be able to report taxes to the government, to the IRS. And that's totally reasonable and normal. We want to make sure that we craft this legislation such that it encourages innovation for players in the crypto space and in the DeFi world.

DANI ROMERO: Well, such a great conversation. Thank you so much, Kevin and Brett, for joining us.