- Bitcoin has had a bumpy few weeks amid rising rates, inflation, and geopolitical risks.
- Kevin O’Leary attributes $BTC’s volatility to the lack of institutional ownership at the sovereign level.
- The Shark Tank investor explains why he still has 20% of his portfolio invested in digital assets and why he’s bullish on NFTs.
After trading in a tight range for weeks, bitcoin (BTC) tumbled as much as 7% on Thursday to land below $37,000.
At $36,000, bitcoin had declined almost 24% this year and was down about 48% from its all-time high of nearly $69,000 in November.
The largest cryptocurrency failed to break out higher and continued to experience wild
because there is a lack of institutional adoption at the sovereign level, according to Kevin O’Leary, a venture capitalist, entrepreneur, and star of the “Shark Tank” series.
“The reason bitcoin stays in a very tight trading range is basically nobody owns it,” he told Insider in an interview at the Crypto Bahamas conference. “I don’t mean that facetiously. I mean it’s owned by retail investors, high-
investors, some hedge funds, and some specialty funds, but no sovereign wealth funds have indexed it.”
The lack of crypto adoption by these state-owned investment funds means that there is no buyer supporting the market when cryptocurrencies go down. But that could change even with a small sovereign mandate of 1%, which is kept at that weighting in perpetuity once it’s indexed, he explained.
“If you have a 1% weighting and the price drops, you buy more to get back up to 1%,” he said. “If it goes higher, you sell down to 1%. That provides stability in the market, but we don’t have that.”
To be sure, the drumbeat of news about the growing institutional adoption of crypto is by no means all smoke and mirrors. At the Crypto Bahamas conference, co-hosted by 30-year-old crypto billionaire Sam Bankman-Fried and think tank SALT, half the audiences were institutional investors or governments that did not own any crypto at all, O’Leary observed.
“They are here because they are watching the momentum and policy start to change,” he said, pointing to the trio of bills from US Senators Pat Toomey, Bill Hagerty, and Cynthia Lummis that are being put through bipartisan committees on Capitol Hill to create regulatory frameworks for crypto.
On top of those bills, President Biden in March signed an executive order on cryptocurrencies, calling on federal agencies to study the risks and benefits of digital assets while encouraging the Federal Reserve to continue its assessment of a central bank digital currency. The order has been positively interpreted by the crypto industry as a big step towards gaining regulatory clarity in the US.
“Now we know with certainty that it’s not going to be made illegal, so all of that happened in the last four months,” he said. “This is a watershed.”
Maximizing and diversifying crypto bets
As an institutional investor, O’Leary cannot allocate more than 20% of his portfolio to any one of the 11 sectors within the S&P 500. His conviction is such that he believes digital assets will become the 12th sector of the blue-chip index.
“So we’ve taken the view that crypto is a sector and we’ve taken our weighting to 20%,” he said. “Within a mandate like that, you are only able to own 5% weighting in any one name. That’s a classic institutional mandate.”
Today, O’Leary holds 32 positions in digital assets, which are comprised of tokens as well as equities of crypto companies FTX, Immutable Holdings, WonderFi, and BitZero.
His strategy is to own the institutional-grade infrastructure plays that support crypto activities and diversify his bets across tokens, projects, and companies. For example, his portfolio includes layer-one protocols solana (SUN), avalanche (AVAX), and hedera (HBAR) as well as layer-two scaling solution polygon (MATIC), decentralized wireless network helium (HNT), and decentralized exchange be a (SRM).
“I have to get diversification, that’s my major motivation,” he said. “I don’t need all of them to be successful, I need four of them to be successful. That’s like venture investing, you are lucky to get 20% to work, but when they work they pay for all the mistakes you made. “
Linking NFTs to physical assets
An avid watch collector, O’Leary is bullish on how NFTs could disrupt and turbocharge the secondary market that specializes in trading high-end watches.
According to firm McKinsey, the pre-owned watch market is set to reach $29 billion to $32 billion in sales by 2025. The rapid growth and lofty value of the asset class have also attracted fraudsters.
“There are so many fake Rolexes out there that are manufactured because the demand is so high,” he said. “It’s very hard to tell the difference.”
In his view, that problem could be resolved if watchmakers simultaneously issue an NFT that contains all the calendar information, the serial number, and all the other authentication information. In addition, they could receive a royalty every time the watch changes hands.
O’Leary is betting on the proliferation of NFTs through his stake in Immutable Holdings, which holds early-stage ventures including NFT.com, 1800Bitcoin.com, and CBDC.com,
Eventually, he sees NFTs becoming the technology underpinning and authenticating passports, real estate debts, conference tickets, and driver’s licenses.
“Why do I have to carry around a card that I can lose when I could have an NFT that’s attached to my mobile device, and just show the police officer my driver’s license, and he would know with certainty it is authenticated,” he said . “That’s coming and that’s what the NFT platform is going to be about.”