Kevin O'Leary: I would fire Coinbase's CEO if he worked for me

Shark Tank Investor and O’Leary Ventures Chairman Kevin O'Leary says he would remove CEO Brian Armstrong from power if it were his say. O'Leary tells Yahoo Finance Live that if he were running Coinbase, he'd want a leader that wouldn't "want to go to war" with SEC Chairman Gary Gensler.

Video transcript

JULIE HYMAN: The SEC asking a judge late yesterday to freeze all assets on Binance, his US platform, after filing a suit accusing the exchange of improperly handling funds and operating as an unregistered broker. The SEC's actions recently taken against Binance and Coinbase could transform the US crypto market, which is largely operated outside regulation pushing them to follow the same rules now as traditional stock and bond exchanges.

Kevin O'Leary is with us now, O'Leary Ventures chairman. And you've talked a lot about crypto in the past. You've had your own challenges, I guess, when it comes to FTX in the past.

KEVIN O'LEARY: I think that's an understatement.

JULIE HYMAN: Well, yes.

[LAUGHS]

So, I guess, I'm being diplomatic.

KEVIN O'LEARY: Thank you.

JULIE HYMAN: But to bring it to today, I'm just curious how you're thinking about these latest developments.

KEVIN O'LEARY: I take a different view than others, perhaps, on this. I'm actually happy this is happening. Because from the potential of this asset class, it has been stymied. It's stuck in the mud, if you want to use those words. It hasn't gone anywhere for three years because there has been absolutely zero institutional interest. And so people ask me, well, why is it that Bitcoin, which is probably the best index for crypto valuation, is stuck between $25,000 and $30,000 in perpetuity? Because there's zero institutional interest.

And so 97% of all the world's wealth in terms of being invested is done through sovereign wealth or institutional investors or indexed in the S&P 500. Or 60% of the S&P is now ETFs. And none of this is carried in crypto. You don't find crypto anywhere. And so while it's been great to be part of this wonderful nascent community, and cheering on this idea of a rogue nation of crypto trading, it's worthless. Because the asset class is a nothing burger today. And it will remain so until you resolve this issue.

And so now, we go on to this litigation. We've got two major claims here. Binance is completely different than the claims made against Coinbase yesterday. These are two different situations. And they need to be looked at differently. But, overall, I welcome it.

BRAD SMITH: So are you then long-term still very bullish cryptocurrency, as we were talking about even last year? And even in this interim period of time during the crypto ice age, how much has that impacted your own holdings? How much have you lost as a result of this interim ice age that we've seen in crypto?

KEVIN O'LEARY: Well, some of my losses had to do with FTX basically. Whatever you want to allege to that, you'll have to go to trial, et cetera. But the asset class itself still has tremendous potential. So what I've done is reestablish our positions up to a 5% weighting. But I also realized at this point that we're going nowhere. We are not going to advance the cause. We're not going to get any capital appreciation. It's just not going to happen until the very first institution calls me up and says, we're going to put a 50 basis-point weighting in a $100 billion fund.

JULIE HYMAN: How does what has been happening clear the path for that? Because it seems what the SEC has effectively done-- let's leave Binance to the side for a moment, because there are some Binance specific issues-- they've effectively said all the tokens have to be regulated as securities. Does that then negate the market for tokens in the US? Does it just make Bitcoin valuable? What does this do to the landscape exactly in the wake of this?

KEVIN O'LEARY: Well, let's raid the room. Let's go to Coinbase. Let's talk about butting heads for the last four years with the regulator. It's now crystal clear what Gensler wants. He is calling it a broker dealer exchange, period.

There's no grayness. Now, if I'm on the board of Coinbase or I'm a shareholder, which I'm not, and I certainly have almost taken all of our capital out of there, I have zero interest as an institutional investor in putting $0.01 into an exchange, a service, a centralized wallet that is at war with the regulator I serve every day. I have no option but to serve the SEC. If I want to issue securities, I want to participate in financial services, whether I'm here in New York or I'm in Abu Dhabi, or London, England, or in Zurich, we all play by those rules.

We have for decades. We understand the rules. We've built it into our systems. We report to it. There is no optionality there. And then you say, here's an asset class you're interested in investing in. But while you're at it, we're going to war with the SEC. So you can invest with us. And we'll go to war, our fourth battle with the SEC. Maybe, there's a new idea. Here's a new idea for you. How about swapping out the management of Coinbase? Finding a new leader that doesn't want to be Don Quixote in front of windmills and constantly fight a regulator, that's told him three times, no. The answer is no.

And I hear it. The rest of the world hears it. But apparently, he doesn't. And I hate to be critical. But why can't we find a leader that wants to sit down with the staff and Gensler himself and say, OK, worst case, hear me out on this. Let's agree Bitcoin is a security. Let's say USDC is an actual equity that pays a dividend. Let's treat USDC as not a speculative asset. But when it pays yield, that's interest income.

If you want to lend a token, that's a dividend. And it's a security. Would you up -- if you sell it or you don't, or you make money, you don't, that's the long-term or short-term capital gain. What's so wrong with that? Why not agree to that. And then have trillion dollars come into the market, once you've had that agreement.

I'm OK with whacking Brian. He's a great guy. Putting someone else in there--

JULIE HYMAN: He's a great guy. We can get rid of him. But he's a great guy.

KEVIN O'LEARY: He's a pioneer. But if he worked for me, I fire him. I don't want to go to war with Gensler. That's a really bad outcome for me. They've decimated their stock. They've decimated their market cap. And they want to do it again. That's just insane.

BRAD SMITH: Just to put a fine point on that, you've essentially decreased your positioning or your portfolio weighting of cryptocurrency. Now from 20%, which is what it was maxed out at last year, down to 5%. That's one technology. Where else within your portfolio-- are you looking across some of the cutting-edge technology, generative AI even right now? Do you chase the FOMO trade in AI?

KEVIN O'LEARY: I don't chase it. But I already own those names. I've owned the semis. I've also owned Microsoft. I've owned Google. These have been names that are part of our portfolio and have been forever as equity. So we've enjoyed this extraordinary run on tech. We have an index that does that.

So I'm not worried about that exposure. You're right. We've taken down crypto a lot while we wait out the war. We're at war now. And so Binance is a-- it would be great to resolve this. Let the last shoe drop. Binance has that BNB token. If it goes to zero, it's FTX all over again. And once this is over, and once we've agreed that these are securities, and once we've agreed that these are broker dealers under the same rules that everybody else has to operate, we have a new nascent industry that's going to take off again.

This should be considered a rebirth. And I'll take my asset allocation back up to 20% when that occurs. What's wrong with that? This story is getting boring. It's getting boring. Hey, let's fight the Securities Exchange Commission one more time. What a stupid idea.

BRAD SMITH: We want to talk about another topic, though, here. When we think about the other areas of the economy that many who we've spoken with on a day in, day out basis, they are looking at the Fed and what the Fed is going to do from here and trying to telegraph what Q3 2023 recession. How are you looking at that? How are you trading around that? How do you believe the Fed has done in terms of their own job?

KEVIN O'LEARY: I have to admit, and I've been Fed watcher, I have to be for my whole career because I'm trying to figure out like everybody else what they're going to do with rates. This is an extraordinary situation. We may actually, and I say, we as a market, may have actually engineered a soft landing. We have been waiting. This is the most highly anticipated recession that's never appeared.

Number two, I think there'll be another 50 basis points of rate hikes to get us into that 5 and 1/2 terminal rate, which means money will trade at 7% and 7 and 1/2% in the best credits all the way up to 15%. We've had great economies with rates like that in the past. And we are still at full employment. Here's the one challenge. The data hasn't changed on inflation. It's still north of 4%.

So if you think the Fed is going to stop, I think you're nuts. They're are going to keep going. Another 25 basis point, another 25 basis point after that. And for all the criticism that Powell has taken, he has been a master of guiding this ship to a slowdown that looks like it won't even be a deep recession. Right now, it looks like that, as evidenced by new highs in the market.

Are you kidding? This guy should be given an Oscar. He's done a hell of a good job. And so yeah, he'll get bashed every day. And it's political and all the rest. But tell me what he's done wrong as evidenced by where the market is today.

JULIE HYMAN: Well, as you say, a lot of people bash him. So they have a lot of things to say about that. But I want to turn to another area of your expertise, which is funding startups. And your role on "Shark Tank" in deciding which startups are worth your money. And we thought we would have a fun hypothetical for you. Let's say a company comes to you, maybe, it's called Banana. And it says we have a $3,500 headset, looks like ski goggles that we're going to sell to people. It's going to allow you to do all kinds of cool things with apps and augmented reality.

And this is what we're going to be trying to sell to the public. Would you fund that kind of a product?

KEVIN O'LEARY: I was having this exact narrative with my tech son, who's a deep, deep, deep dive techie. And I said, this is absurd. He said, dad, you once worked for Steve Jobs. I said, that's true. I did. And he told you how many countless times, they don't know what they want until you give it to them. And I thought, Trevor, you're right. He did say that. He's always been right that way.

And so there's two billion cell phone users in the Apple platform right now, two billion. All you need is one-half of 1% to even want to try this $4,000 head set in the context of the platform they're providing. And you've got a monster market. And so in that sense, I think the narrative should be, let's see what happens. But it also buoys a much lesser version at $500 from Meta, which has also been spending billions developing this. Some percentage of the population may not be like you and I.

I don't want to wear a computer on my face. That just doesn't turn me on at all. But that doesn't mean I'm the market. But I think about the potential. And if you told me, look, do you want to have a look at a new condo in LA? Just put this headset off for five minutes. And I'll give you a virtual tour. Or how would you like to have an expert walk you through the new museum in Egypt for King Tut instead of flying there? It's a billion and a half dollar facility about to open in a few months. I'll give you a tour just for you.

Put on this headset. Now, you're talking. And I can see that happening. And if you said to me, look, how would you like to market O'Leary fine wines and have someone be with you when you're blending?

BRAD SMITH: I can't taste it through the headset, though.

KEVIN O'LEARY: No, but I can taste it for you. And I certainly know how to do that. And I'm just thinking to myself. yeah, I see that. So there'll be a high end market that Apple is going to pursue. And there's going to be different tiers. But you need the software platform. But your original question about startups, we're having a real hard time with capital right now. Since I was last here, venture capital has dried up on first rounds.

There hasn't been a new deal in three months. And there is just no appetite. Because every VC, including me, is looking at their existing portfolio. We have over 30 companies. We're saying, which ones are going to survive? Which ones aren't going to make it? Where do we put more capital? We're not looking right now. Although, "Shark Tank" starts next week. And there'll be all kinds of new deals. But I'm licking my chops for this season because the valuations are going to come way down, way down to the 2008 levels, when we started this show decades ago.

And I think we're going to have a very interesting season.

BRAD SMITH: Just lastly, while we have you. There's going to be a lot of focus. And there already has been a ton about what it means to be a purpose-driven business. There's been even more swirling around Disney and their battle with Ron DeSantis. But even more recently, Target and them pulling some items of clothing that had to do with support of LGBTQ+ rights.

And for what we've seen with how people are now calling on Target and the business community as a whole to stand firm in their support of the community, I wonder what it means to you for companies to be a purpose-driven business while at the same time understanding the market that they're operating in and still moving forward with the values that they want to convey to consumers and their customers?

KEVIN O'LEARY: Well, you're raising a very good question because it's measured by market capitalization. Let's take the example that started this whole narrative, Bud Light. When you're marketing a beer, you are selling a commodity. Your beer is no different than any other beer, except its brand. That's it. And so your job is to take care of your customer, your employees, and, ultimately, your shareholders, or stakeholders that have put up capital to risk it.

And you've spent decades building America's beer by spending billions of dollars in advertising. Is it really your job, and I speak to the CEO, and then the board above that man or woman, to get involved in educating beer drinkers about gender--

JULIE HYMAN: Was it about that though?

KEVIN O'LEARY: --identity?

JULIE HYMAN: Or was it about someone on the marketing level actually thinking this would be a good idea in trying to appeal to a different market than traditionally, they had appeal to? You have to tread that line between you don't want to alienate your existing market. We can argue about why they were alienated, and appealing to a new market. That's a tough line to tread, isn't it?

KEVIN O'LEARY: How about this? You lost me $9 billion. Tread that line. I'm firing your rear end. And that's exactly what happened. Because you did not understand your job was to sell a liquid commodity. You did not understand the relationship between that liquid commodity, beer. You're selling beer. Your job is not to educate the entire society on gender neutrality or not. That is not your role. Your role is to sell beer.

And if you can't sell beer, I think you should be terminated. And that's what I think should happen. $9 billion in people's retirements accounts. That's a lot of money. For what? Why did you do that? And so I think stay in your lane, read the room, understand your mandate, and don't get too far off your primary objective, selling beer.

And that also goes to Target. And it goes to everybody else that thinks, well, my job is no longer to take care of just my constituencies, my customers, and my employees, and my stakeholders. I am going to educate the world--

JULIE HYMAN: But it's not. But it's not just, they're not doing it out of necessarily some sense of altruism.

KEVIN O'LEARY: What are they doing it for? Who are they helping?

JULIE HYMAN: It's about brand identity. It's about supporting--

KEVIN O'LEARY: How's that work for them?

JULIE HYMAN: --their employees.

KEVIN O'LEARY: How is that working now?

JULIE HYMAN: For a company like Disney, it seems to be working out quite well. They are supporting their employees. They've had gay days at Walt Disney World in Florida for years. And they have a very loyal employee base.

So in some cases, it works quite well.

KEVIN O'LEARY: Wait. The last--

JULIE HYMAN: And it worked quite well--

KEVIN O'LEARY: What was the name--

JULIE HYMAN: --if they would have done this five years ago. It would have been fine.

KEVIN O'LEARY: What was, the name of the last CEO that actually started this mandate? I think I forgot his name already. He's ancient history because he took that company stock down from, I think, $126 to $90. And that matters, too. That's billions of dollars erased because he had a, well, let's get involved in a huge debate about this. I think Mickey and Minnie want to take care of kids entertainment. That's their mandate. It's family values.

Republicans, gay people, gender neutral people, they all want to go to Disneyland to be entertained, not to be educated on social issues, I believe.

JULIE HYMAN: I don't think it's about education. I think it's about support.

KEVIN O'LEARY: Well, then what is it?

JULIE HYMAN: It's about support.

KEVIN O'LEARY: And I think they brought back the old CEO, Iger. And he's thinking himself, wow, wow.

JULIE HYMAN: But he's also doubled down. All right. We got to leave it here. We got to leave it here.

BRAD SMITH: All right. Kevin O'Leary, O'Leary Ventures chairman, joining us here in studio.