EXCLUSIVE: Jordan Belfort Says 'Regulatory Arbitrage' A Major Factor In Crypto Bear Market

Few investors are as well known as Jordan Belfort, not only because of the Leonardo DiCaprio film "Wolf of Wall Street" revolving around his early life, but as a popular author, speaker and investor in cryptocurrency and in traditional finance. 

We caught up with Belfort while he was at NYC.NFT. "I’m looking at the nervous laughter and scaled down parties right now," Belfort said. 

I wanted to get the perspective of someone who has devoted his life to following the markets and sees cryptocurrency as another asset class, not a revolution changing the world and connecting us all in distributed utopia.

In a space that has been pushing hard toward crossover acceptance, Jordan offers a crossover point of view. He's a person who sees the value in cryptocurrency, but is less bullish on the cherished beliefs the cryptospace tells itself about becoming wealthy while changing the world for the better. 

Source: JB.online

What role does regulation play in the problem and the solution for this bear market? 

"I think things that have been supporting the crypto market growth were not good for the long-term outlook and one of them was regulatory arbitrage, which was really dangerous because you can get away with bloody murder. If you're an exchange, a new company, or a VC you could do whatever you want within reason. It's reasonable that it helped create all this hot money for projects that should have never been financed." 

In light of massive failures like Terra Network what about people who have put their faith in high-return passive income through hedge farming?

"It's obviously somewhat of a Ponzi scheme. The world fell for it with hedge funds and in the traditional stock market with Bernie Madoff, not that long ago. He was offering 12%, so it's the same old story again, everyone wants to believe in Santa Claus. 

But Terra was so painfully f***ing obvious ... Terra was a complete scam from the start.

The old story never changes and in this case there is literally zero regulation, so, of course it's gonna’ happen. When I got pitched on Terra Luna and I had my CFO look into it, he's like, there's no way this is gonna end well. There's nothing backing it. It's like creating a sh–coin as a reserve to balance out against the U.S. dollar. 

Bubbles are not created by accident. Someone is pushing the insanity and creating the illusion of prosperity. People want to but it ends the same way every single time."

What will it take for the crypto market to right itself?

"A lot has to happen in this market before it rights itself. There are people that have been raping and pillaging the village. I fault the regulators as much as anybody else for allowing this to happen. The inaction is insane that they've allowed it to get this far. I think there's gotta be some real hell to pay. I think that like 98% of tokens out there serve no purpose, except to enrich the people that created them. But the projects that are great, I think they are going to come back stronger than ever."

Historically, what would you compare to the current situation?

"It's really like 1929 but with no regulation, creating insane leverage, that's what's happening here. So I don't know what's gonna happen. I know for sure that there is more leverage that needs to get worked out of the system. Until the leverage is worked out of the system, you're gonna continue to have these huge dips. I think it's definitely not over yet. But I think we're probably closer than not to the end."

How much of this bear market is created by the Fed raising interest rates? 

"There's gonna be huge headwinds as the Fed keeps raising rates. There's been an artificially depressed interest rate cycle for the last 20 years. So these current interest rates are still historically low. They depressed rates for 20-plus years, with the fed kicking the can down the road since the bursting of the dot-com bubble. How far can you kick the can down the road? The answer is apparently until 2022."

What can we tell these people? I've heard you'd say before not to invest money you can't afford to lose. We know that people don't follow that.

"People were drunk on crypto. They thought it's replacing the dollar. It's such f***ing nonsense. 

And just because something is decentralized doesn’t make it better. In fact, it usually makes it worse. Decentralization is not an advantage for most things. It's a negative. 

I personally think that Bitcoin BTC/USD over the next five years, is going to be substantially higher — that’s my opinion. 

But the best investment anyone can make by far and I know it’s been mathematically proven, historically, is take your money and put it into the S&P 500. And just hold it and reinvest the dividends — that's where you're gonna get your biggest bang for the buck. Just dollar-cost averaging over time and slowly build wealth."

If cryptocurrency is meant to be used as currency, isn’t huge growth really more desirable than slow steady growth?

"If you look back, I was really bearish on it in the early day. I was wrong with my initial bearish bet in 2017. When it was $30,000, I said it was going to zero. But then it came back years later. But the biggest red flag to me was that when it was $30,000 and everyone was saying it was going to $300,000. In order to get suckers to buy, you can't tell people to buy at $30,000 if it's going to $40,000, even though that's a 33% return.  That beats every investment out there, bar none. 

But in order to get the unsophisticated to buy it, you have to tell them a story that says you can get rich quick. So everyone's beating their chests screaming from the hilltops, it's going to $200,000, $1 million, $3 million, nothing that's grounded in anything rational because that's what you need to get suckers to buy into something like that.

If it's just gonna return 15%, I might as well buy the S&P 500 that returns 12% or 13%, historically, with far less risk and full regulation." 

Is the wish to get rich quickly by buying cryptocurrency just a flawed approach? 

"So I think that right now you need to have I think people need to just get sober about this. If you're buying Bitcoin because you think it's going to $500,000, it's probably stupid. No one knows where it's going. I think it's going higher. So I bought it. But I'm not looking at it to get rich. You can't do that. I'm not saying people haven’t gotten lucky.. But this is not a sustainable strategy for creating wealth. Start a business, get a great job. You cannot use this as a vehicle to get rich."

And why have they kind of dragged their feet about regulating it?

"Well, the wheels of justice grind slowly. For all we know, there could be a massive wave of indictments about to come down. It's a complex area that they're not familiar with. They need a roadmap for prosecuting these cases. I don't think they realized how popular it would get. It became a freight train out of control. 

I'm guessing this wave is going to end with Bitcoin and Ethereum and the good projects falling significantly lower. Then regulation comes in and the big institutions take over this market. And it's gonna be a completely different market with JPMorgan and Goldman Sachs using this technology to do trading and settling on their own. I think Bitcoin will go much higher after they reposition at much lower levels. They missed the first big run and drove it back down so they get a position at the bottom with regulation in place."

What does the government have to do to protect retail investors?

"There's a huge regulatory arbitrage that has to be closed. You don't have a functioning regulatory system right now for crypto. And everyone just raped and pillaged the villages every single day until now. They just can't do it anymore, because no one's watching so no one has got money left to steal." 

How do you feel about NFTs right now? 

"NFTs right now, the way they are structured serve zero purpose and have zero value. 99.9% of them are worthless. But I do believe NFTs will have massive value in the future. I just don't think this first evolution is proven data technology. I think NFTs are going to be a big part of the future digital economy, but they gotta’ be attached to something that has real value, not some stupid sketch."

My Conclusion 

Recently, I’ve heard it suggested that the blockchain world has succeeded in replacing every problem of traditional finance with an equal or greater problem on blockchain.

This may be an exaggeration, but it shows a real frustration for those who have been waiting for the transformative power of decentralized finance for a number of years, yet they still struggle to offboard crypto to take profits because fees and taxes can be so high.

People who have been invested financially and personally in the space are as impatient to see results as newbies who don’t know anything about the space. And we need to take seriously the lesson of those newbies – they don’t care about whether digital ownership is the future. The world at large will accept crypto when it becomes an easier and cheaper way to do something that they need to do every day. We can cherrypick use cases employed by a limited number of users every day that offer advantages over traditional finance, but the fact remains that Bitcoin is our only real breakout use case beyond perhaps NFTs. 

We need to take points of view like Belfort’s seriously. We cannot move forward with Bitcoin or any cryptocurrency as an actual currency until we have a better regulatory framework and the stability that goes along with it. Then we can build back with growth in mind, a more mature market ready to work seamlessly with traditional finance and all the big money that brings. Will it be a compromise to the crypto purists? Certainly, but compromise can be an essential a part of growing up. 

Cover image by Gerd Altmann from Pixabay.