'Shark Tank' Star Kevin O'Leary Calls Litigating Your Crypto Regulator 'Really Stupid'

Venture capitalist and "Shark Tank" star Kevin O'Leary said that crypto exchanges shouldn't be taking legal action against regulators.

"Litigating your regulator, in my opinion, is a really stupid idea," he told CoinDesk TV's "First Mover" on Tuesday in reference to Coinbase (COIN), the largest U.S. crypto exchange by trading volume. Coinbase may face regulatory action from the Securities and Exchange Commission (SEC).

O'Leary is a strategic investor in Canadian crypto exchange WonderFi, which plans to merge with two other Canadian exchanges, Coinsquare and CoinSmart.

Last month, the SEC issued a Wells Notice to Coinbase, which warned that the agency may pursue legal action against the company for allegedly violating securities laws via its exchange operations and staking services.

In Coinbase's case, O'Leary said, it would be "better to sit down and work it out" with regulators, and if a "U.S. regulator doesn't want staking or lending, so be it."

However, San Francisco-based Coinbase said in a blog post last month that the exchange was "confident in the legality of our assets and services."

O'Leary said that Coinbase's pushback against regulators may ultimately not work out in their favor. "You've got to read the room," he said. "You have to read the writing on the wall."

According to O'Leary, staying within the good graces of regulators should be what other crypto exchanges aim to do.

"If the crypto community and crypto investors like me want to fit into the existing global financial services system, we have to tuck under the regulator," he said. "I no longer have any interest in going to war with regulators, litigating regulators and suing regulators. That is not the future of crypto."

As American regulators target its largest trading platforms, the future for three Canadian crypto exchanges may soon spur interest in the digital asset industry from investors in the U.S.

WonderFi, Coinsquare and CoinSmart plan to merge into one entity. They have a combined 1.65 million users and over $600 million in assets under custody, so would be considered one of the largest regulated crypto trading platforms in the world upon combining.

Canada "may be the guinea pig that is forging forward with all kinds of regulation that is effectively working," O'Leary said.

O'Leary said the partnership is a "necessary merger" and one that could only be done by scaling, in part because of the cost of compliance, which, he said, is expensive.

"We've moved our assets to Canada because we're able to stake there," O'Leary said. "There's enough tokens under the regulatory environment that we can get full exposure to the volatility of crypto and do it in a way that we can report to our compliance departments and tax regulators in some way."

Read more: Coinbase Aims to Stay in Canada; Binance Could Be Poised to Exit Amid Regulatory Shakeup