EXCLUSIVE: Kevin O'Leary On Expanded FTX Partnership, Crypto Regulations

Last month, regulated cryptocurrency exchange FTX signed a brand ambassadorship and investment deal with entrepreneur, venture capitalist and "Shark Tank" investor Kevin O'Leary.

Since Benzinga’s first in-depth report on the matter, it was revealed the Securities and Exchange Commission would critically assess the nascent market and potentially crack down on emerging products like Coinbase Global Inc’s COIN proposed cryptocurrency lending.

O’Leary updated Benzinga on his intent to hone in on the FTX partnership, as well as foster innovation and regulatory evolution in the broad cryptocurrency space.

Why: “When the facts change, I change.”

That’s what O’Leary told Benzinga weeks ago in reference to a clear change in regulatory leeway that inspired his involvement in the cryptocurrency space. To put it simply, the businessman has his hands in too many investments; he does not have the option to be off-sides.

“Institutional investors struggle with the decision to invest in crypto assets. Not because they don't want to, but because they have difficulty in knowing with certainty that they will be 100% compliant with regulators and reporting requirements,” O’Leary told Benzinga in an update.

With that regulatory evolution, O’Leary looked to earn yields on cash from real-estate divestments; he wrote short-duration contracts on products like USDC garnering yields sometimes as high as 5%.

The process to do that was difficult as there was no infrastructure for compliance like in the currency, bond, or stock market. That means institutions running $1-billion mandates for sovereign funds, for instance, can’t get the mark-to-market reporting necessary for regulatory compliance.

That’s when O’Leary set up an infrastructure with FTX, an institutional-grade cryptocurrency he proudly endorsed given the ease with which compliance departments and external auditors can audit on-platform activity.

“To find crypto investment opportunities that met my own rigorous standards of compliance, I entered into this relationship with FTX,” he said.

“FTX leverages best-in-class tech to provide a quality trading experience with low fees for both professional and retail investors alike, while at the same time providing the reporting platform that serves both internal and regulatory compliance requirements."

The O'Leary, FTX Partnership Details: O’Leary is confident he can bump his portfolio’s cryptocurrency weighting to 7%. The ability to monitor positions every second and generate end-of-day reports is an essential part of compliant participation in this nascent market, he told Benzinga. 

“I want to increase my crypto exposure but also serve my compliance mandates. When it comes to rapidly changing compliance and tax reporting requirements, the current cryptocurrency ecosystem is fraught with risks that I cannot take.”

To note, alongside the equity stake in both FTX Trading Ltd. and West Realm Shires Services Inc. — the owners and operators of FTX.com and FTX.US — O’Leary is to accept payment for his ambassadorship in cryptocurrency.

Also, FTX desk traders will assist the businessman in diversifying and disclosing his portfolio holdings.

Impact On Innovation: When asked about what innovations he is most interested in spending time on, O’Leary pointed to decentralized finance — colloquially referred to as DeFi — a model that replicates market-making, borrowing, lending and exchanging without expensive institutional middlemen.

“If I want to buy stocks [elsewhere], you have to buy them in the local currency on the local exchange. Every time I do that, I get clipped multiple basis points and there’s no value there,” he said. 

“When we get DeFi operating, I’ll cut all those guys out and they’ll be shining their shoes,” O’Leary added, pointing to organizations like FTX and WonderFi leading initiatives in the space.

In reference to the regulatory environment, O’Leary said he welcomes clarity and believes that participants can’t play if they don’t know the rules. If regulatory clarity comes, flows in the trillions of dollars would come across the market, increasing liquidity and attracting innovation, he said.