At the end of last year, the FTX crypto-currency exchange’s collapse scared off investors. But now, bitcoin is up 39% in 2023. Yet the star of Shark TankKevin O’Leary, the most listened to economic influencer in the United States, warns that there could be more fiascos in the crypto-currency world.
When asked if he believed there would be another FTX in a Kitco News interview, O’Leary’s answer was yes.
“If you ask me will there be another collapse to zero? Absolutely, 100%, it will happen and it will keep happening over and over again“, he says.
“All unregulated exchanges are experiencing massive outflows right now. The smart money got the joke. They saw what happened at FTX. They are not sitting around waiting for an explanation“.
Simply put, institutional investors won’t put their money into unregulated crypto exchanges.
“If you’re not willing to be audited, and I’m talking about any exchange, if you don’t have an auditor, if you don’t want to be transparent, if you don’t want to disclose ownership, why should institutional capital stay there? Of course it won’t stay there“.
That said, Mr. O’Leary is not giving up on bitcoin. “I’ve been back in the crypto markets lately. Every time bitcoin drops below $17,000, I strengthen our positions.“
And where is Kevin O’Leary keeping his crypto investments these days? “The only place I have crypto right now is up in the Canadian market, which is 100% regulated. They have a broker-dealer attached to an exchange regulated by the CSO [Commission des valeurs mobilières de l’Ontario]all kinds of rules, you can’t commingulate” he tells Kitco News. As you might expect, O’Leary is not going to put his money into unregulated exchanges.
Gold or Bitcoin?
Some say bitcoin is the new gold. While O’Leary has been one of bitcoin’s strongest advocates, he still likes the yellow metal. O’Leary tells Kitco News that to protect himself from inflation, he has a 5% weighting in gold and 5% in bitcoin.
This is because gold cannot be printed out of thin air like fiat currency. And its value tends to remain resilient even in times of crisis. There are many ways to gain exposure to gold. O’Leary uses two methods for his 5% exposure.
“I have half of it – two and a half percent – in physical gold that I pay for storage. And I use various ETFs for the rest, which allows me to rebalance every quarter.“
Some gold investors also own shares in gold mining companies, but O’Leary is not one of them. “I don’t own the miners because over a long period of time, 25 years, you want to take the idiotic management out of the equation“, he says. “All they do for you is extract the ore from the ground. You might as well just own the raw material.“
Ultimately, O’Leary’s portfolio does not consist primarily of gold or bitcoin. He remains primarily an equity investor.
“I have a large share of shares” he says. And like most smart investors, O’Leary doesn’t put all his eggs in one basket.
“No stock exceeds 5%. No sector exceeds 20%. The portfolio is therefore very diversified.“
Of course, even a diversified portfolio can have ups and downs. In 2022, the S&P 500 fell 19.4 percent. So what should investors look for in a company in today’s market?
“Now, I look for companies that, A, have positive cash flow, B, distribute their profits. In other words, they take the cash and distribute it as dividends. Some of them will buy back stock, but since they are no longer taxed, I think the dividend will be more popular” he says.
At the same time, O’Leary stresses that it’s important for companies to do this “without going into debt“.
“So if you have a clean balance sheet, not too much debt, and you’re distributing profits, well, that’s a good place to invest.“