Why Kevin O’Leary Says Investors Have Moved Away From Crypto
The US government doesn’t like what it sees.
- O’Leary believes major investors have left the US crypto industry due to regulatory crackdowns.
- A more predictable investment vehicle than cryptocurrencies is the US stock market.
- Crypto investors can start with Bitcoin and Ethereum and limit crypto investments to a small portion of their portfolio to maintain stability and mitigate potential losses.
Crypto is in the penalty box right now. The treasure trove of promising coins has been knocked on its back by the industry-shaking collapse of giants like FTX and Celsius, which filed for bankruptcy one after another due to bad luck and mismanagement.
Crypto isn’t dead, but it’s down hard. According to Pitchbook data, from the third to the fourth quarter of 2022, venture capital crypto investments fell almost 50%. Talk about a fall from grace.
Kevin O’Leary, investment guru and Hai tank personality, recently discussed why major investors have moved away from crypto and where they are headed next.
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Kevin O’Leary thinks big investors are ditching crypto
In an interview he posted on Twittersaid O’Leary, “Venture funding for new #crypto projects is practically dead, and aftermarket trading for existing projects is at huge discounts.”
That is not entirely true. According to Pitchbook data, VC firms such as Coinbase Ventures and Shima Capital continued to invest in crypto projects as recently as February. But O’Leary is right to say that wealthy investors have come to view crypto as a money trap.
Why the sudden change of heart? O’Leary explained, “#the regulator is now regulating with enforcement, penalties and massive fines.” He claims that the FTX collapse prompted the Fed to act.
Brief background: In 2022, crypto firms collapsed like dominoes, taking billions of dollars with them. FTX, Alameda Research, Terra, Celsius, Voyager Digital and Three Arrows Capital all imploded. Even individual investors lost money, sometimes thousands of dollars, overnight.
The “enforcement” O’Leary warned investors about includes millions of dollars in fines and the shutdown of coin issuance. For example, the US Treasury Department fined US crypto exchange Bittrex over $50 million for violating anti-money laundering laws.
Not even the biggest, baddest names in the crypto universe have escaped attack.
The Securities and Exchange Commission (SEC) sued Binance, the largest crypto exchange in the world by volume, for offering unregistered securities and violating investor protection laws. Then the New York Department of Financial Services forced Binance to stop creating its own currency ($BUSD).
It’s no wonder investors are fleeing crypto. But VC investment is still booming. “The waiting community has moved on to the next ‘big’ thing, #AI,” O’Leary said.
The investment guru was referring to fancy new AI-powered technology like ChatGPT and Midjourney, which have captured the hearts of millions with human-like interactions and stunning visuals.
Regulation means less volatility
I have seen my crypto investments shrink since mid-2021. Drama in the crypto universe is partially responsible. As O’Leary said, the US government is tightening its belt and bringing out the big guns. Regulation appears imminent.
However, that is not necessarily a bad thing. For crypto to stop being a wild west of investment dollars, laws must be passed to make crypto safer for users and platforms. Regulation makes crypto predictable, and predictable means less volatility.
We will have to wait and see what the rest of the year brings. If you own crypto, know that the laws regarding its use are likely to change. Potentially, crypto will be more taxed, more stockbrokers will offer crypto services and it will be more difficult for businesses to issue coins.
And for now, big names will continue to be cautious about investing in crypto. For individual investors, crypto remains a high-risk investment.
Alternatives to crypto investments
If US regulators make crypto less attractive in general, the value of coins could fall. An alternative to crypto is the stock market.
The US stock market is more predictable and beginner-friendly than crypto. It has averaged a return of 10% per year over the past 50 years. Newbie investors can buy shares in great companies through the best brokerages out there.
Although promising, crypto is volatile and largely unregulated. Start with the most recognized coins in the crypto market, Bitcoin and Ethereum. Limit your crypto investment to less than 5% of your portfolio to maintain stable returns and mitigate potential losses.
Crypto is not dead, but the luster of coins has dimmed considerably. Take a note from the pages of big investors like de O’Leary follow and be careful when investing in cryptocurrencies.
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