Just over seven months after the fall of Sam Bankman-Fried and his FTX crypto empire, another king of the fledgling blockchain-powered financial services industry finds himself in the line of fire of the regulators.
It is about 46-year-old billionaire Changpeng Zhao and his Binance empire. Zhao, known by the initials CZ in the crypto sphere, and Binance, the biggest crypto exchange in the world, are accused by the SEC of mishandling client funds and lying to regulators, in an effort to circumvent U.S. laws, putting client funds at risk.
The Wall Street regulator is asking the court to issue an injunction that would make it hard for Binance to do business in the US, unless it accepts to bow to the SEC, which is also seeking unspecified fines against the platform.
Binance denies the charges and says that the regulator is trying to gain publicity. But for Kevin O'Leary of the hit TV show Shark Tank, this complaint and the charges are too reminiscent of FTX and Bankman-Fried. He therefore believes that Binance has no future.
O'Leary, who has crypto investments and is a WonderFi Strategic Investor, spoke with TheStreet; the remarks were edited for clarity. WonderFi is a group which operates a large portfolio of crypto platforms.
TheStreet: What do you make of the allegations against Binance and CZ?
O'Leary: You've heard these allegations before. It was called FTX.
These charges by the SEC not only [against] Binance, FTX, are very serious. They're all getting sued into oblivion. And in a way, it's a good thing. It's time to take out the rogue players, the bad actors of fraudsters, some ways of calling the pioneers, but there's just too much rogue activity to allow us to go out, and now it's one way.
TheStreet: Do you believe rogue activities went on at Binance?
O'Leary: I don't know what to believe. These are really, really serious charges. There's now two regulators chasing Binance. [In March, the US Commodity Future Trading Commission filed a lawsuit against Zhao and Binance for allegedly letting US residents buy and sell crypto derivatives while the firm is not registered.]
But what it's going to do is scare institutional capital off the platform. That's already happened. Over a billion dollars in the last few hours. If you're an institution, you're not going to want to do business with them because they're not complying with the SEC, and most institutions globally invest money in the S&P 500. They have to be compliant. The reason there is a cap on Bitcoin, the granddaddy crypto white checkered past $30,000 there's no new buyers. There's no interest while all of these charges and lawsuits and allegations keep going. It just scares institutional capital away.
These are all really serious. And why would the SEC make these charges up if they had no basis or merit? That's what institutional investors are asking. And how this ends I have no idea but I can tell you this, I'm glad I'm not a Binance shareholder and I'm very happy. I don't have an account [with Binance]. And I think, a lot of other people are saying the same thing right now, because they've [the SEC] made a right recommendation in the US at least to freeze the assets of Binance and put them under court jurisdiction. There's nothing good about that news."
TheStreet: What would you recommend to an investor who has an account with Binance?
O'Leary: Take your assets off and find a jurisdiction like Canada or Switzerland or Australia or England where they have regulated exchanges that are compliant out there. And that's what I've done. I've moved all my assets up to Canada. I use Bitbuy.
I think Binance is going to have a hard, hard time operating in any jurisdiction, while under the scrutiny of the SEC. The SEC is probably the most important regulator on Earth, and most regulations and other markets follow what their lead is, and I think everybody knows that. So there's absolutely no good news here. There is no business.
TheStreet: What Is the Future of Binance?
O'Leary: I don't think it has a future. I think what happens to it going forward is either sells its assets to somebody who's willing to disclose ownership, probably pays billions of fines to the SEC. I have no idea. I guess they attempted to do that unsuccessfully, ending up in litigation.
My guess is volume slowed dramatically over time, as regulated exchanges start to pick up their accounts. I mean, it's okay if you're at a rogue nation, or you don't care about regulation or you are happy to breach laws in your country. I'm not. 99% of investors don't want to do that. So where do you go and keep buying? It's a great question.
I think what's happening here is the end of an era of the rogue, unregulated, crypto broker dealer exchange, to a new era of new management. Once they have worked in a compliant fashion and integration into the financial systems of the globe, because the promise of crypto doesn't go away. It's a tremendous asset in terms of technology for payment systems, and perhaps storage of value. But the point is, the days of the rogue and the fraudster and the unregulated exchange [are over].
I think it's a good thing. So my guess would be in five years, all of these pioneers, all of these, in some ways, great entrepreneurs. I mean, you have to commend CZ for that he built a multi billion dollar business. Maybe he should have become compliant a few years ago. But the history books will decide that, but I think a new generation of managers is coming in. And none of the roles that are here today including CZ will be around.
TheStreet: How do you explain that the prices of BNB, the token issued by Binance are up?
O'Leary: BNB is about a $50 billion market cap [actually $44.4 billion according to CoinGecko]. Almost 50% of it is just [held in] 10 wallets. What happens if one of those wallets wants to sell it? Haven't we seen this movie before with FTX? Who also owns these wallets? I have no idea. Nobody does.
I don't know what value it has really. I think that's very concerning. I'd be very worried about that. And I'm sure people are. I don't think that's, in my view, a very good investment.
TheStreet: Do you still believe in Bitcoin?
O'Leary: I didn't believe in Bitcoin until the regulators opened up the first market to do it. I bought my first Bitcoin in Canada, where they created the first ETF for it with the underlying asset being Bitcoin. We still don't have that in the United States. Then, we have an Ethereum based ETF, so you can invest in Canadian exchanges as I have done. I own a piece of the exchange and I have all my assets there. I've got millions of dollars tied up there. And I feel safe because the regulator makes sure that no assets are commingled.
I mean, how many times you have to keep hearing a regulator say, 'Oh, they commingled the accounts.' We've heard this movie over and over and over again, it's getting boring. I've seen the movie so many times, and people are just unhappy. They want the change.
I think today should be celebrated as the beginning of a new era in crypto. Out with the old in with the new. That's simple.
