Why Kevin O’Leary Says Investors Have Moved Away From Crypto

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The U.S. government doesn’t like what it sees. 

Crypto is in the penalty box right now. The treasure chest 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 the other due to bad luck and poor management.

Crypto isn’t dead, but it is 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 Shark Tank personality, recently discussed why big investors have moved away from crypto and where they’re headed next.

Kevin O’Leary thinks big investors are ditching crypto

In an interview he posted on Twitter, O’Leary said, “Venture funding for new #crypto projects is virtually dead and aftermarket trading for existing projects is at massive discounts.”

That’s not entirely true. According to Pitchbook data, VC firms like Coinbase Ventures and Shima Capital continued to invest in crypto projects as recently as February. But O’Leary is correct in saying wealthy investors have begun to regard crypto as a money trap.

Why the sudden change of heart? O’Leary explained, “The #regulator is now regulating by enforcement, penalties & massive fines.” He claims the FTX collapse prompted the Fed to act.

Brief background: In 2022, crypto firms collapsed like dominos, 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 of includes millions of dollars in fines and shutdown of coin issuance. For example, the U.S. Treasury fined U.S. crypto exchange Bittrex over $50 million for violating money laundering laws.

Not even the biggest, baddest names in the crypto universe have escaped crackdowns.

The Securities and Exchange Commission (SEC) sued Binance, the biggest 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 running away from crypto. But VC investments are still booming. “The venture community has moved on to the next ‘big’ thing, #AI,” said O’Leary.

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 jaw-dropping images.

Regulation means less volatility

I’ve watched my crypto investments shrink since mid-2021. Drama in the crypto universe is partly responsible. As O’Leary said, the U.S. government is tightening its belt and drawing out the big guns. Regulation looks imminent.

That’s not necessarily a bad thing, though. 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’ll have to wait and see what the rest of the year brings. If you own crypto, know that the laws regarding its use will likely change. Potentially, crypto will be more taxed, more stock brokerages will offer crypto services, and it will be harder for companies 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 investment

If U.S. regulators make crypto less appealing in general, then the value of coins may drop. An alternative to crypto is the stock market.

The U.S. stock market is more predictable and beginner-friendly than crypto. It has returned an average of 10% per year over the past 50 years. Beginner investors can buy shares of great companies through the best brokerages out there.

Though promising, crypto is volatile and largely unregulated. Start with the most reputable coins in the crypto market, Bitcoin and Ethereum. Limit your crypto investment to less than 5% of your portfolio to maintain stable returns and cushion potential losses.

Crypto isn’t dead, but the shine of coins has dulled considerably. Take a note from the pages of big investors like those O’Leary follows, and be cautious when investing in cryptocurrencies.

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The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Cole Tretheway has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin and Ethereum. The Motley Fool has a disclosure policy.

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