Lab Summaries - Kevin O'Leary | Why 20% Of My Portfolio Is In Crypto

Welcome to Lab Summaries, where I summarise my key insights from long but interesting online crypto resources I find online.

I’m a podcast lover, so for this very first post I’ll be sharing a summary of a podcast interview with Kevin O’Leary - famous entrepreneur and ‘Shark Tank’ investor.

He shares more about his views on the macro environment, his thesis for crypto, how crypto can become the 12th sector of the S&P, and much more.

Macro investment outlook

Let’s start with what’s on many people’s minds: macro.

Unlike most conventional wisdom, Kevin doesn't quite see impending recession. From his experiences, demand across various sectors he is invested in has shown no signs of slowing down.

To him, companies with pricing power, positive business models and low debt will have the power to pass on rising costs to clients even during inflationary times.

He also quotes the ‘Lemming effect’, and believes that the best time to invest is when everyone is going in the other direction.

Case in point: growth rates for many of these high growth companies have not slowed down, but prices have been disproportionately cut.

Crypto investment framework

So how should we think about crypto investing, in particular?

Kevin looks at bitcoin, ethereum and other blockchains as software - Their long term survival is based on their economic value they bring.

For example, stablecoins provides value and utility as a long term payment system that solves problems in the traditional finance world.

It allows for cheaper, faster and overall more efficient transfer of currencies across geographies in the world, cutting out middlemen and providing much needed value.

Blockchains that can (a) provide value, and (b) capture that value should be able to thrive in the long run.

But are we still early?

He believes that we are still very early in the adoption curve.

We are nowhere near mass adoption currently, with no sovereign funds, and no institutional capital in the space.

Why? They won't invest in crypto until there are policies and regulations in place.

The Crypto Investment Thesis

This segways nicely into our main crypto investment thesis:

Entering crypto at this point is before trillions of dollars come into the market in future.

Kevin predicts that in the next 10-12 years, Crypto will be the 12th sector of S&P.

Huge pension funds can typically allocate up to 12% of funds in one sector, signifying a huge capital inflow.

Furthermore, crypto and blockchain provide real value.

Today, currency FX is a bad and inefficient market. There are middlemen extracting high fees with zero value added.

Here’s where blockchain can come into play.

Financial services can be revolutionised with crypto and blockchain, making it a lot faster and more efficient.

This positions crypto as potentially one of the biggest sectors in S&P as well.

Finally, NFTs

Kevin observes that NFTs have many different iterations of use cases.

NFTs with utility (such as staking, airdrops) are similar to a security - this might have regulator trouble.

Similarly, we will need regulation to get institutional capital into the nft space

However, he is confident that there is a huge market in NFTs that authenticate physical assets.