FRMO Corporation (FRMO) Q2 2023 Earnings call Transcript

FRMO Corporation (OTCPK:FRMO) Q2 2023 Earnings Conference Call January 17, 2023 4:15 PM ET

Company Participants

Thérèse Byars – Corporate Secretary

Murray Stahl – Chairman and Chief Executive Officer

Steven Bregman – President and Chief Financial Officer

Conference Call Participants

Operator

The broadcast is now starting. All attendees are in listen-only mode.

Thérèse Byars

Good afternoon everyone. This is Therese Byars speaking and I’m the Corporate Secretary of FRMO Corp. Thank you for joining us today for the Company’s 2023 second quarter earnings conference call.

The statements made on this call apply only as of today. The information on this call should not be construed to be a recommendation to purchase or sell any particular security or investment funds. The opinions referenced on this call today are not intended to be a forecast of future events or a guarantee of future results. It should not be assumed that any of the security transactions referenced today have been or will prove to be profitable or that future investment decisions will be profitable or will equal or exceed the past performance of the investments.

For additional information, you may visit the FRMO Corp.’s website at frmocorp.com.

Today’s discussion will be led by Murray Stahl, Chairman and Chief Executive Officer and Steven Bregman, President and Chief Financial Officer. They will review key points related to the 2023 second quarter earnings. A replay of this call will be available on the FRMO Corp.’s website until the summary transcript is posted.

And now I’ll turn the discussion over to Mr. Stahl.

Murray Stahl

Okay. Thanks Therese, and thanks, everybody, for joining us today. Before I start talking about FRMO I just wanted to acknowledge the ultimate founder of FRMO was an attorney called Lester Tanner and he passed away a couple of days ago and Sunday was his funeral. I just want to acknowledge him. He was just an incredible unbelievably brilliant and warm human being and we probably wouldn’t have even have an FRMO Corporation, and in fact I should say probably we definitely wouldn’t have an FRMO Corporation were it not for his leadership and insight, and if we had more time I would tell you about his just amazing wife which he did amazing things even in retirement. So I just wanted to acknowledge him as a human being. He will be sorely missed. He was a great guy. He is one-of-a-kind and we’re going to miss him dearly.

Anyway, with that, we’re never going to forget him and we shouldn’t and I’ll go into FRMO. So as you can see, the quarter was pretty good, at least I think so. We have — this is FRMO’s itself shows equity of $224 million which I believe is a record. We’ve got plenty of liquidity. We’ve got $36 million in cash. We have de minimis or at least I think it’s de minimis amount of debt. That debt incidentally leads to a building which is the building that houses our investment in HashMaster one of our various cryptocurrency investments and more about that later.

The thing I want to focus on for the quarter is the development of our strategy in currency. I’ll first touch on Horizon. So Horizon itself has done pretty well. Horizon is for the year closing December 31, 2022 we collected a number of performance fees and a fair amount of net income, therefore that’s going to spillover in the revenue in next quarter FRMO because you will recall we have our revenue share. And there’s also some investments in FRMO and there are very comparable investments in Horizon, so they are going to have very similar kinds performance so expect some good news over there.

And you’ll recall that everything is reported with regard to Horizon with a lag. So in our next quarter which for us is the calendar ending February 28, the Horizon information is going to be included as of December 31, just to your edification, and I know we’ve said this many times before, but just to bear that in mind, so there’s always a lag. So right now from a Horizon point of view, we’re reporting things that are really September 30, as if they happened on December 31, because this was a bit of information we had at the time we did these financial statements.

And the financial statements for us let’s not forget, as of November 30. Now our cryptocurrency strategy you will recall we entered cryptocurrency you might say gingerly and we were particular in maintaining that posture in the past year. In the past year other than may be the last week or so, cryptocurrency led by Bitcoin, basically declined endlessly. The cryptocurrency mining machinery declined even more and the cryptocurrencies declined more than Bitcoin.

The reason for that is, and we’ll cover it later, there are three vectors that really govern the price of cryptocurrency particularly Bitcoin. And you can bid cryptocurrency up, but you have to be very cognizant that’s a function of the always upcoming halving, the halving, that we’re to have halving basically means that the block award for mining Bitcoin is going to be cut in half, that’s why they call it halving and that’s cutting about 470 days.

In the case of Litecoin I think it is a 198 days if I’m not mistaken. And you’re always in a world of mining where you should always be preparing for that. And in the prior year people not only didn’t prepare for it, they didn’t realize that as we approach the halving the equipment used for mining is just worth less money. So the idea of bidding up crypto mining equipment is a very bizarre idea and we did very little in the world of investing in crypto.

Now you can say more or less the market is properly discounting the halving. So we’re much, much more favorably inclined to crypto. Now in our cryptocurrency exposure, apart from the crypto we own directly and indirectly in the funds, we have four cryptocurrency investments. I’m going to just mention them, because we don’t really highlight these things in the financial statements. One is called consensus mining, that is the merger and the capital raise of the original HK cryptocurrency mining partnerships and we did an offering. That offering is going to be listed in tradable and not in the distant future I’m guessing, but I’m thinking 60 to 75 days from now, maybe sooner.

So consensus mining watchful trading and we own some shares of that, and there is Winland, which we used to call Winland Electronics, now it’s called Winland Holding because it’s holding a variety of cryptocurrency investments. I will read all our cryptocurrency figures and our investment figures in our moment. We own 7.1% interest in HashMaster. HashMaster is a number of things.

HashMaster is a mining repair company, mining crypto repair company. It’s also a hosting company for mining, so it’s our default mining site. So we don’t want to or we cannot, or we’d find it disadvantageous to be in certain other sites, kind of we retreat the HashMaster. We’ve done that more than once when we couldn’t get terms that we need and of course that company repairs our equipment. And also there’s some HashMaster mining for its own account that goes on there.

And lastly we own an investment in Digital Currency Group which is a long-term investment for us and since we bought it, it’s done fairly well. And then we have the following investments now, I’m going to mention TPL in a minute, but let’s go through the various cryptocurrency elements.

So we have — first we’ll read, this is where you, from a list obviously, these are the holdings we have so to speak implied, mean our pro rata share via partnerships. We have 596,936 shares of the Bitcoin Investment Trust, GBTC. We have 4287 Ethereum Classic Investment Trust, ETCG is the symbol of that. We own 27,186 shares and Bitcoin Cash Investment Trust always fund the Grayscale as part of cryptocurrency group, BCHG is the symbol.

We own 616 shares of Grayscale Zcash Investment Trust, ZCSH is the symbol and we own 6582 shares of Litecoin Investment Trust. We own 227 coins of Bitcoin Gold, we actually own that directly that was a fork from the Bitcoin we own directly and which has owned the funds held directly.

We have 139.6 actual Bitcoin or which we might. We also own directly 7647 shares of GBTC the Bitcoin Investment Trust. We own 18 shares of the Ethereum Classic Investment Trust. We own 40 shares of Bitcoin Cash Investment Trust all directly, 283 shares of the Litecoin Investment Trust. We own 1763.5 actual Litecoin that we mined. This is in FRMO itself. We own 35 Ethereum that we mine. You can’t mine Ethereum anymore because it went to proof of stake. For proof or work we own 661.7 Ethereum Classic coins.

We own 6.7 Bitcoin Cash coins that we mined and we own 62 Zcash coins that we mined. Now we own 30.8% as of the last reckoning of Winland, now Cortland [ph] Holdings, formerly known as Winland Electronics. So what I’m going to do is, I’m going to read you what Winland owns and you can multiply that by 30.8% and get the right number. So this is what Winland owns, I think it’s relevant. 63.3 Bitcoin, all which it mined, 7.4 Bitcoin that we didn’t mine we actually bought. 14.9 Litecoin that we bought or acquired in various ways. 53.5 Zcash that we acquired in various ways including purchase. One Bitcoin Cash coin. 8.7 Bitcoin Gold got that out of the fork and 9.4 Ethereum Classic that we actually purchased in the marketplace. And remember we own, this is FRMO 30.8% of Winland.

In terms of Texas Land Trust, which is our biggest investment at the moment as you well know, we have direct holdings of 7449 shares and indirect holdings basically in various funds everything from Polestar to HK Hard Assets we have 52,224 shares and you can add them and you can multiply by price and you can see what it’s worth. Those are our investments. Now the point that I want to make is, and may be there’ll be some questions about crypto. So there are some similar events that happened or are in the process of happening crypto that I think are very positive. So I’ll mention those things and I’ll make some comments about Horizon and maybe we can go to the questions and answers.

So the CBOE, Chicago Board Options Exchange, you will observe now has a digital asset exchange. It’s really important to the future of crypto SBS spot regulated market for crypto in order for crypto to be an accepted asset class. And that’s in the process happening. Obviously it’s going to start small because it is in test mode, but the regular exchange CBOE already has a digital asset exchange. Before very many months elapse, I personally expect other exchanges to have digital asset exchanges as well. CME of course already has some Bitcoin features.

The Bank for International Settlements some number of weeks ago announced that they are because they are quasi-regulator of banks around the world it is now possible to have 2% of a bank balance sheet to be crypto. Now there are some pretty big banks in the world. Can you imagine if 2% when the bigger banks were crypto, can you imagine if 2% of the bank were Bitcoin what that would mean for the price of Bitcoin, well that’s in the process of happening.

Now digital assets mean a lot of different things to a lot of different people. There are already digital assets that need to trade that can trade. I’ll give you some examples. Airline miles, lot of people on this call probably have airline miles, might they know, no they haven’t have airline miles maybe have no intention to use them. There is no reason that those can’t trade on a regulated exchange and there is no reason why they can’t trade in the form of being paired with the appropriate cryptocurrency whatever it happens to be.

Loyalty points, coupons, CBS, Walgreen, just examples. There are many, many retailers to have these things. You may not wish to use them, you may not know you have them. When on a Blockchain you’d be able look at it up if they were put on a Blockchain and they were in the process all these assets I’m going to refer to, or I’ve just referred to are in the process of being put on Blockchains and they will be paired with various cryptocurrencies, and they will be traded on the exchanges.

So credits may be you subscribe to some service online that you never use. They debit your credit card every month. Maybe somebody wants that service. Maybe you can sell that service to somebody else, that’s a digital asset. So there is no shortage of digital assets that have yet to be truly digitized in the cryptocurrency sense of the word. All of that is in process of taking place. So we expect really similar developments in the world of crypto in the not-too-distant future.

Now you might have observed that in Horizon we have a little ETF that we started called the Blockchain development ETF and if you look very closely you’ll see a lot of that ETF is probably traded exchanges and there is a reason for that. So we can’t introduce cryptocurrency especially in digital assets in the sense that I just referenced without having regulated exchanges. It’s a recipe for disaster. The regulated exchanges have to be properly set up to do these things and that takes a lot of doing. So all the process of happening.

So I personally predicted, it might sound like an outlandish statement, but the day will come when cryptocurrency is going to be the biggest traded assets. I would compare it as think back half a century the Chicago Mercantile Exchange. At that time it was a mere commodities exchange. And as a mere commodity exchange you trade less commodities as it does right now. For example, Bitcoin is a commodity and there was no record of that in the early 70s, 50 years ago.

In any event currency became currency futures I should say became tradable. If you go back to the Wall Street Journal at 50 years ago and look up the day that currency future started trading because you always have gone to a bank and exchanged your currency, could even have done a forward swap at a bank. So you didn’t technically need a future, but we ended up having futures. If you were to read the op-eds in the Wall Street Journal on the day currency futures started trading in the CME and you were to cross out the word currency futures and write in the word cryptocurrency, you could publish that article today. The same things people said then we’re saying now.

How much bigger is currency futures than commodities and how much bigger is bond futures and currencies? No one thought about futures although they needed it 50 years ago and now we have it. Look how big it is. I think I hope I’m right about this, I’m doing this memory so forgive me if I misstated slightly, I don’t think I’ll be very far off. I believe that commodities account for about 7% of the revenue of Chicago Mercantile Exchange.

So growth in exchanges would not have been possible without bigger asset classes and new asset classes and we had them. They were unimaginable 50 years ago. Still it’s hard to imagine Cryptocurrency as an asset class being respected and a larger institution having a cryptocurrency allocation of varying sizes might be in its coming. So I think cryptocurrency has an extremely bright future and I invite your questions on that.

I much mention one other thing is which is…

Yes please go ahead.

Steven Bregman

I would just like to interject a tiny bit of color. You can do it better yourself, but you decided to be efficient with your time which I think you might need to be with all the questions. But indeed at the time that CME was proposing currency futures, it was actually fought by many responsible people including policymakers that number one it would be illegal and if it wasn’t it should be because it could actually be dangerous for the entire financial system. It could undermine the sovereignty of nations. That was the kind of discussion or rhetoric that was going on at that time.

Murray Stahl

Yes that was the argument and just to give you a little bit more color, we have so many questions, I want to make sure I get to them and deal with all of them, but to just give you a little more color on that point, there were many reasons why it, they thought it would undermine nations. So I’ll just give you two. One is, you’re buying a future. It could be argued and it was argued at the time, you’re betting on the future value of a currency relative to another. So if you’re betting on the future value of a currency relative to another, which say, we don’t even think about that, that’s a standard and prudent hedging practice. 50 years ago they said that was gambling and of course, 50 years ago gambling was illegal.

So was gambling really illegal or was hedging your currency exposure illegal? Today I think we can state without equivocation that the authorities effectively, although intent might have been related to gambling, their intent was different than what actually happened. They didn’t want to make prudent hedging of currency exposure illegal, but that’s what they did. It was impossible to hedge your currency exposure. For companies, like we had in the United States of America they were branching out internationally. So if you thought about it in the forward-looking sense, the companies are branching out internationally, there’s going be a need to hedge their currency exposure. Couldn’t do it without getting yourself arrested. It’s amazing, but that’s what people said.

And then of course the idea, remember this is the early seventies, the United States was not yet off the gold standard. The idea was no currency should be allowed to float because a nation needs to control the price of its currency. Experience informed us during the seventies with the inflation, no nation was a, was ever able to truly, really control the value of its currency relative to other currencies and they basically gave up. And then suddenly they gave up pricing their currencies in gold. So currencies no longer had the fixed reference of gold and they basically gave up on fixed currencies.

So that change, put yourself in the position of policy makers in that era to give up fixed currencies in that era it’s a much bigger change, a much bigger sea change and simply allowing cryptocurrencies today. So what we ask for in cryptocurrencies is de minimus relative to what actually happened. It was earth shattering at that time. So anyway, I was going mention HK Hard Assets is the last thing, and we’ll take the questions.

So HK Hard Assets, we’re building it up. Remember its purpose is to be, to get other investments not revealing what the investments are and we are approaching the $4 million mark in money in HK Hard Assets. Who’s in HK Hard assets? FRMO, me, a company called Horizon Common, some other partners in Horizon. So we’ve just started ourselves and we’ll build it up in the way we built HK Hard Assets to up, designed to benefit from inflation and I think that’s happening.

Oh, I have to make one other, yes, I forgot, and one other thing which I should have said at the beginning, so you might know that we in FRMO have an investment in the Mesabi Trust. And I didn’t know this until a couple days ago. This is an odd fact about the Mesabi Trust. So I’m not really talking about the Mesabi Trust in its investment sense. In 1962, the Mesabi Trust was listed. It’s Mesabi Trust is the kind of investment we like, which is it just collect revenue, it doesn’t really have any employees. In 1962 to list at New York Stock Exhange was considered to be extraordinarily controversial.

And I am reliably informed by people who know about this subject that the SEC had objections to listing such an enterprise on the New York Stock Exchange. And you could see it from their point of view, it’s not really a business of course. It is a business and the way I look at it, and of course it is listed in New York Stock Exchange and has been for more than half a century and it’s now no longer controversial.

However, the attorney representing the Mesabi Trust to get it listed was none other than Lester Tanner, the founder of FRMO, so a little bit of irony there. It shows you something about the circle of life. We touch each other in ways that we don’t realize. I didn’t know that until a couple days ago. Anyway, I’ll leave you with that thought. And unless you have something to add, Steve, could we go to questions?

Steven Bregman

By all means.

Murray Stahl

Okay Thérèse, if you could facilitate that, read the question and we’ll endeavor to give the best answer we can to the subject.

Thérèse Byars

It will be my pleasure. The first question, what are the revenues that FRMO receives from its ownership interest in HK LLC revenue stream that is valued on the balance sheet at $10.2 million? Is this figure a straight flow through to FRMO’s bottom line or is it offset by any cost/taxes? Now this does this figure very much. Do you want to answer? There’s more, but…

Murray Stahl

Well, let’s do that. So let’s do it this way. We’re getting, it’s, I remember the number exactly, we’re getting a little bit less than 5% of HK’s revenue. So it varies with HK’s re revenue and HK’s revenue varies in a couple ways. One is, sometimes you get performance fees and sometimes you don’t get performance fees, so it varies that way. It varies with market value fluctuation of the assets we manage and of course it varies with the clientele. So there’s no tax offset or anything else. So what you get is what you get. There’s no — we don’t take anything out of it. It just is what it is. So you apply the pro rata figure to whatever the gross revenue is for that quarter. And the fourth quarter, as I said earlier, can be a big quarter with performance fees. This is the fourth quarter Horizon or it just passed. And we have a respectable amount of performance fees. So we’ll have an unusually large revenue to report in February 28th mostly coming from Horizon. Now was there a question about HK Hard Assets? I think they meant Horizon. So…

Thérèse Byars

I think they meant Horizon.

Murray Stahl

Yes. The only thing we get from HK Hard Assets is the dividends. So our biggest investment in HK Hard Assets, there’s no secret, is TPL. There’s some other things in there, but it’s all revenue that comes from HK Hard Assets. So I just took the liberty of interpreting the question referred to Horizon itself, not Horizon Hard Assets. So if there’s more, I think now is the time to get to it.

Thérèse Byars

Okay, I’ll just rebuild that. So does this figure vary much each year based on performance fees or other factors? And I think you just answered that. If so, would it be possible to provide the revenues to FRMO for the past few years and/or what is expected in 2023, 2024? This is obviously a very valuable asset for FRMO, and I would be interested in how Murray and Steve think about its value as it is essentially a royalty stream.

Murray Stahl

Okay, well, let’s see. If you want the back numbers, it’s easy to get because if you look at our financial statements for the various years and you would divide our revenue by the probation factor, which I should think is some like of something like 0.0493 or something like that. Anyway, somewhere in the annual report you’ll see it. And divide what, so if we get $3 million divide by that number and that will give you the Horizon revenue for that time period. So that’s easy to do. So I probably should have memorized the number exactly, but I guess I’m too lazy. I’ve never memorized it, but it’s somewhere in this document. And if you can’t find it, I know it’s in this document, if you can’t find it we’ll get you the number, but it’s something like 0.04 93 or oh 0.95 or something like that.

So is there anything I haven’t answered in that? Now if you want me to do a future forecast, obviously I can’t do a future forecast without getting myself in some legal trouble. So if you don’t mind, I’d rather not get myself in legal trouble and truth be said, I can’t know exactly what it’s going to be. If I can just tell you this, if cryptocurrency does well, you’ll be very happy with the revenues produced by Horizon.

Thérèse Byars

Next question. What is the difference between the above item that is the participation in the revenue stream and the investment in Horizon Kinetics LLC that sits on the balance sheet as $14.6 million? Is there income to FRMO that flows through from this investment separate and distinct from the interest in the revenue stream mentioned before? How should one think about the true value within a range of this ownership stake relative to the $14.6 million stated value on the balance sheet?

Steven Bregman

Yes. So basically there’s two components set. The first component is yes, we don’t get revenue. We, own a piece of the profits. So basically we get distribution that’s designed to offset, it gives us enough capital to pay our taxes. A certain amount of Horizon is other than the tax distribution is reinvested. So that number on the balance sheet, the $14 million odd, that doesn’t represent our assessment of the value. It basically represents the investments on Horizon’s balance sheet. There is a little bit of goodwill there, not a lot of it. So you can decide if that goodwill is merit or not, but it’s mostly cash and investments. So for the most part, it’s a hard book. At some point we’re going to have to monetize horizon and then you’ll get to see a real trading value and you’ll know for sure.

But right now I think the number is something like, either 4.93 or 4.95. So if you take that let’s call it 14.5 million to make it easy and you divide by 0.0495, which is approximately right, so 14,563,000, I’ll use a calculator. I make it a little precise divide by 0.0495, and that’s $294,202,000. That’s the value. We don’t have $242 million in cash and hard assets there. It’s not that much. So there’s some goodwill there, but we’ve got a lot. So I’m not disclosing the number we have right now yet, but as I said, there’s not a lot of goodwill there, especially not for an investment management company. In the right market, there’ll be some type of monetization event, probably a listing at some point and you’ll get to see what the trading value is because it’s going to have to happen at some point, just not happening today. So but it’s a sympathy, but to answer your question directly, it’s separate and distinct from the revenue share.

Thérèse Byars

Next question regarding Winland, my understanding was that one of the strategies was to grow the mining operations significantly. With the current level of distress in crypto mining, is there any reason why Winland has not acquired additional significant mining assets or made strategic investments like the Argo blockchain Senior Notes, which are currently paying and were available at 4 cents on the dollar or less than four months of accrued interest to quote Hillel the Elder, “If not now, when?”

Murray Stahl

Okay, well, the answer is very simple and you can see it quantitatively on what’s called Luxor ASIC Price Index. The prices machines are collapsing. So to go out and acquire machines, there’s no reason to do that when the prices are collapsing. The machine prices are not properly discounting the mining reality and approaching halving, we don’t want to buy any machines. And the mining business, the word mining equipment was tremendously overvalued. How overvalued is it? Can we give you something quantitative? That’s a rhetorical question. I believe it’s implied in the question I just got, so I’ll answer it.

You’ll recall about two and a half years ago, we did a swap with Winland. FRMO bought some equipment, brand new equipment, which we in turn immediately sold to Winland in exchange for shares of Winland. So I think we got a pretty good deal relative to price winland was trading at that time. That equipment, if you look at this price index, that equipment rose in value a lot through December or November of 2021. And then if you look at that Luxor ASIC prices and machines proceeded to collapse.

When I say collapse, I may be a percent or two off, I would say lost from the high point 86, 88, maybe 89% of their value, something in that range. Okay? If today you wanted to buy the machines that we had sold to Winland two and a half years ago, which by the way, we’d depreciate over three years and it’s been over two and a half years, so it, they’re almost fully appreciated machines, you would pay a price today, even not dramatically different than what Winland paid or what we paid to buy them FRMO few years ago. So it still hasn’t discounted reality, so you just had to stay away.

What we did in FRMO is, we were nibbling away when we thought it was appropriate at Winland shares and we thought that was the best use of the capital given what was going on and based number of shares and Winland itself is not, we have liquid, we didn’t buy a tremendous number of shares, but the price we got Winland at so far we made a, I would say a respectable profit at. So that’s how, that’s what we’re doing in investment sense. During the collapse it just didn’t make sense to be very active in this area other than what I just told you and we weren’t very active. In the future, we’re getting more constructive and we’re probably going to be interested in buying some equipment at some point. But we want to buy and it’s not everything we do.

We really weren’t interested in buying used equipment that had been used for three plus years because it’s nearing the end of its useful life. Yes, we could, we could have repaired it and throw some money into it, but I don’t know if we’d ultimately break even or not. We didn’t want to do that. So our next move, if we decide is the right move, we’re probably going to buy some state-of-the-art equipment. And don’t forget, we did very, very maybe a month or two ago we did buy some equipment in consensus mining, brand new state-of-art equipment, which is now functioning and earning a very high rate of return. Remember, when you buy equipment, you always have be cognizant of the approaching halving. So at this stage, we’re going to have to buy some new equipment. At least we think that’s the best value. So I hope that’s thorough enough.

Thérèse Byars

Next question. What are management’s thoughts on oil royalty businesses making acquisitions right now at the expense of shareholder dilution, for example, as is the case for Sitio Royalties acquiring Brigham Minerals?

Murray Stahl

Okay, well, let’s just say that’s a very elegantly phrased question. Thank you so much for phrasing it that way. And basically we don’t want to, I or let’s put it this way, I don’t agree that it makes sense to acquire royalty interests for equity like we’ve done in a transaction that you described. So I’ll explain why. The royalty, no matter how good the royalty is, the royalty is finite. Sooner or later, so every oil royalty has a decline curve. Sooner or later it will produce no oil, even if it’s great and lasts long period of time. The equity is forever. So equity is a perpetuity. So generally speaking, that’s one of the reasons, and this is generalizable to acquisitions in a lot of businesses. You buy a business, whatever it is, in this case it’s royalties, but it could be technology, it could be machinery, it could be even pharmaceuticals, it could be anything.

However brilliant, let’s use the example of pharmaceutical, however brilliant it is, however wonderful it is, the pace of human knowledge and human progress, it continues. And let’s say it was a pharmaceutical, one of two things are going to happen. Either A, it’s going to go off patent and you’ll get a lot less revenue for it, or B, which is more likely in the fullness of time, some company will develop something which is a superior treatment to what currently exists. So when you offer stock for someone else’s business, the business you buy is going to have finite life. The stock you were offering has changed to that has an infinite life. And that’s the problem with using equity in acquisitions.

Now, books are written about in the seventies. This was very popular and textbooks are written, case studies are written at major universities about using equity to buy a variety of businesses. The idea was, it was very similar. If you think about to what we now call modern portfolio theory, you would use equity to buy a variety of businesses. Every business has its own cyclicality and if you’re very clever about it, you’d buy a bunch of businesses where the cyclicality of one will offset the cyclicality of the other and you will develop a stable earnings and revenue stream. But the problem is every business is like a human being. It has a finite life and the equity has an infinite life. So ultimately it’s not a sensible strategy and I don’t think very highly of it. And when the reason is why we don’t use equity very much to buy things at FRMO. So that’s how I feel about that.

Thérèse Byars

Next, being on the Board of Directors and large shareholder of TPL, would management be able to speak on why Texas Pacific Land Corporation does not publish any kind of “proved, probable and possible reserves” analysis in their annual reports as other royalty businesses like Brigham, Blackstone, and Fifer [ph] Energy do? The TPL 10-K does not exactly make clear why these figures are “unavailable”. In March, 2022, Bloomberg article noted that the Permian, the “Permian Basin is uniquely positioned to become the world’s most important growth engine for oil production.” So it seems like making the data public on TPL’s reserves should be beneficial for shareholder returns, unless it wouldn’t, in which case shareholders should know about this as well?

Murray Stahl

Well, all I can say in the answer to that question is given my position on the board, number one, given the current circumstances, which if you read the SEC filings, you’ll know what the current circumstances are. I’m just not in a position to comment on that particular subject. So I just, I normally like to answer every question, but I’m just not liberty to answer that question in the manner that is phrased. So unfortunately I’m going to have to decline to answer that.

Thérèse Byars

Okay. The next question. Could management give us an update on FRMO’s MIAX Investments now that Miami International Holdings has filed for an IPO, what is the outlook for MIAX’s asset classes? Does management think it will gain market share? For example, spike futures appear to trade in a similar manner to MIAX, but with the added friction of lower liquidity, why would traders want to switch to trading with this new instrument? Does MIAX have any pricing power versus other exchanges?

Murray Stahl

Well, let’s put it this way. The best way to judge MIAX is just to go on the website and look at the volume. So all exchanges, the profitability is really a function of volume. So to do more volume, it raises the expenses a little bit, but doesn’t raise the expenses a lot. So in a really bad market, the volume contracts, and in MIAX’s case it actually didn’t contract, even the last year was a pretty rotten market. The volume contracts and there’s very little you can do to cut expenses because it’s so efficient, the margins are just so high. So what I can tell you is that in the world of exchanges, we’re going to create just completely new and just amazing, and I think that’s the best way to talk about sets of assets. I’m personally prejudiced and MIAX, I think they have the best technology.

But you know it’s not objective. I’m just saying it because I happen to like MIAX, but I really believe it. In any event, so this is just an example, it’s nothing that MIAX is going to do. I want to give you an example of how the exchanges in the future are going to be different and why I like exchanges so much and like MIAX in particular. Somebody, an investment manager will say, I think the GDP is going to go up or down by a certain amount and therefore I will go longer short the S&P in a certain quantity. The trouble with that is that S&P trade as logical as it is, and even though the premise upon which it’s based might be spot on accurate, is a very idiosyncratic trade. So the economy might go up or down as forecasted, but other things happen.

So the values of currencies rise and fall, interest rates, wax and wane, company’s profit margins expand and contract. So you can’t simply generalize that a GDP of X will lead to an S&P return of some properly commensurate amount, either positive or negative. In the world of the future, what you will be able to do, you’ll be able to do the following. You’ll be able to say, I think the GDP of United States is going to rise by 3%. You will even buy a future that will pay you or some type of its mentality that will pay you. If the GDP doesn’t point in fact rise by 3% and the GDP does not rise by 3% and rises by less than 3% or it actually becomes negative, then you’re going to pay someone else and you will know before you do that trade how much exactly you will make or lose if the GDP performs in a certain manner. So that’s going to be possible in a Blockchain cryptocurrency environment.

So you’re going to be able to do things that today you really can’t do. So there are only a handful of big exchanges with licenses. I mentioned today only a tiny subset of the types of products that are possible. They’re more product conceivable than all the exchanges where all their technology put together can’t handle at the moment. It’s going to be just an incredible experience. Now, as far as the IPO goes, it’s no secret that the IPO market is just, at least until a week or two ago, the IPO market was the worst IPO market in a very long period of time.

I think in the year 2020, hardly any companies came public. I don’t, I’d looked at the list, I don’t remember how many were, weren’t very many. So it’s just a horrible environment to come public and why come public in a horrible environment. Much more logical, come public in a better environment, which we will have eventually in due course, we just have to be patient. I don’t know when there’s going to be an IPO obviously, but it will happen in due course and we’ll see what the value is and I’m very, very optimistic about the future of MIAX I hope that addresses what you wanted me to address.

Thérèse Byars

Yes. So the next question, could you please talk about the prospects for FRMO smaller investments like Digital Currency Group, Winland Holdings, Miami International Holdings and HM Tech?

Murray Stahl

Okay, so MIAX did that one first. I think I addressed it. So I like exchanges in general. I like MIAX in particular. I think the future is bright. I think if you just look at the volume every day and it’s all publicly available, that’s your best indicator. You’ll know more or less what’s happening by looking at the volume and it’s growing and there lots of things are possible. So very bright future. Winland is evolving into a mining company. It was not prudent in the last 12 months to buy any more mining equipment. So it’s probably going to soon be prudent to buy some mining equipment and you’re going to see more investment along those lines.

What exactly we’re going to do and how we’re exactly going to do it? I can’t say, I don’t actually know at the moment how we’re going to go about it, but I think we’re coming to a much better period for cryptocurrency, so look for more investment there. Winland anyway, Winland has prospered. One of the things that Winland is getting or is in the process of getting right now, Winland invested some number of years ago in, you might recall Mt. Gox, which went bankrupt. They were bankruptcy claims, trade claims for the crypto there. And the bankruptcy is now concluding and we are going to monetize the trade claims.

So we’ll put that cash to good use, I hope. And that’s one of the things that’s happening in Winland, continues to mine and continues to build cryptocurrency. One thing I should say about Winland is, if you think about in a way it’s almost like a quasi-Bitcoin ETF. So when you buy a Bitcoin ETF, if there were a Bitcoin ETF, just remember, unlike a mutual fund or an ETF, Bitcoin has no dividends. So you can paint a piece for. So what would happen is, if there were a Bitcoin ETF, the operator, whoever it is, would have to every, each and every quarter or probably every month, would have to sell some Bitcoin to pay the fees.

So let’s just take the abstraction. No one puts money in, no one puts, takes money out to the ETF. There’s a certain amount of coin there and every year the amount of coin is going to diminish. In Winland as you can see and why we read these statements every quarter, the amount of coin there increases because we mine it. So which would you rather have? Would you rather have a cryptocurrency investment where the coin diminishes, or would you rather have investment where the coins increase? I believe one day the day will come when there are Bitcoin ETFs and there are people going to understand the distinction between the two classes. And there are people who will go long the mining companies like Winland and go short the cryptocurrency ETFs and lock themselves in a certain return based on how fast we can grow to Bitcoin with mining. So that’s Winland.

HashMaster is actually doing very well. So the HashMaster is organized in such a way that the different businesses offset one another. So for example, hosting for a lot of businesses became problematic. So we ourselves had equipment and hosting companies that were having difficulties. So we actually had the ability to send our equipment to HashMaster and we have a greater liberty of action, how we go about mining, how we go about buying electric power. So if we another mining company, we have to buy electric power on their terms effectively through them because Winland, we control, we can buy electric power on our terms. So that’s a pretty good thing to have. The repair business was doing less well during the calamity of the equipment price crash.

On the other hand, the movement of our equipment HashMaster was a positive thing. So you could say in that sense, in equilibrium. And during the year we actually expanded HashMaster. We bought a transformer. So what it did is, it gave us the ability to draw more power. And now you know the reason why we wanted to draw more power and that kind of worked out rather well I think. During the months when the electric utility was installing a transformer, the crypto was having its carnage, so we weren’t any of the worst for wear and now it’s pretty good we had that capacity there. The building itself, which is owned by FRMO I’m told, or let’s say I’m reliably informed that we could sell the building now we’re going to, we could sell the building for twice to what we paid for it. So it’s nice to know that. So HashMaster is a nice little asset doing very well.

Digital Currency Group, as you’ve seen, they’ve had their challenges obviously, but the quarter business is fabulous. What’s the quarter business? It’s a Bitcoin Investment Trust and you know what the assets under management are, you know what the fees are and much of that goes right to the bottom line. So there are challenges and other aspects of it is, you can read in the journals, but we never got involved in lending out crypto or any of that stuff. We don’t really believe much in it. And in the future I don’t think you’re going to see this sort of activity in general in the cryptocurrency world. It’s really something that’s best done in banking. So the core business of Digital Currency Group I think it’s great. If Bitcoin or the other cryptos rise in value, which I suspect they will, it’s going to be even better. So the core remains, I think barely robust. So those are the four that I’ve covered. I think that’s complete. So…

Thérèse Byars

Yes, this is a follow up on questioner seven from the fiscal year 2021 second quarter earnings call. “Instead of reviewing it only verbally on the conference call, can you please; can you also please begin to list exactly what the exposures are of the major assets that everyone wants to know about? A small table that shows the number of look through shares of TPL, Bitcoin mining equipment, Winland shares, et cetera, would be very helpful. If that is not possible for some reason, then my question is what specifically prevents you from doing this, is it choice specific regulations”?

Murray Stahl

Okay, well nothing prevents me from doing it since I just read it and I read it off a table, so I don’t see any reason why we can’t put the table somewhere. So could you do that Thérèse, could you arrange to have the table put either on the website or someplace appropriate so everyone could see it? Because I don’t think there’s a regulatory reason, so could we rely upon you to do that?

Thérèse Byars

Yes, I will do that. I will work with Jay on that.

Murray Stahl

So you’ll take care of it. So we’ll take care of that and hopefully it will be up there in due course and everybody can see it.

Thérèse Byars

Okay, next, why are there no first quarter or third quarter transcripts for the year 2021 and no first quarter transcript for the fiscal year 2022? That actually was just put up on the FRMO website, they appear to have been skipped over.

Murray Stahl

Okay. We have them. Oh, you answered that. Okay, why don’t you answer that?

Steven Bregman

I think, I should answer that question.

Murray Stahl

Okay, go ahead.

Steven Bregman

That falls on my broad shoulders. One of the deficits, well first of all, I’ll simply say my fault, I should have done it. And as happened with this particular cycle, I had that document in front of me on my computer screen for quite some weeks and other things kept coming up and I never quite got to it. And that’s been a bit of a pattern and it’s not a pattern that should be repeated. And one of the deficits we’ve had operationally is we haven’t really had the kind of professional at Horizon Kinetics. I’ll call it professional editorial and editing function or layer for various kinds of public facing documents and content producing.

And I’ve been on the lookout for qualified people to do that for quite a long time. And I’ve had different experiments with people with different qualifications. And just so happens a contributing reason why this one was actually posted to our website is that in recent weeks, and I mean this only in the last two or three weeks, I’ve been beginning to work with somebody who I think fits the bill and he’s an extremely qualified, very seasoned professional author and journalist, particularly financial journalist. And he’s actually started helping me out in recent weeks and he’s freed me up to take a look at this kind of thing and he can do it himself. We’ve so far been playing around with kind of like who takes which assignments. And if he works out overtime, it’s early yet and but if someone like him actually works out on a longer term basis, I think we would actually establish a department and proper style, style book and so forth for everything we do and things will work more smoothly. So anyway, I think we’re on track for that. And next order of business on this small end of things is to catch up with the prior two or three that have been skipped.

Murray Stahl

Okay, thanks Steve. I’m sure we’ll get up in due course and okay, what’s next Thérèse?

Thérèse Byars

Next is management has mentioned that they, apart from Jay Kesslen, Thérèse Byars, and now there are three new directors, are they only employees of FRMO and that management takes no compensation. Could management explain what the costs are in the operating expenses of the income statements as well as what determines the fluctuations in FRMO’s operating expenses? Operating expenses were broken down into more detailed lines in annual reports. For example, “employee compensation and benefits” until 2019 where they began to be rolled into a single SG&A expense line. So it is no longer as clear.

Murray Stahl

Okay, well maybe we should reveal it. So Steve and I, we’re not taking any money, so we’re not getting anything because we own the stock and if it goes up, we’ll make money on it. The expenses primarily are the professional fees of the audit, the accounting, that line of country, that’s the primary. There’s the primary fees. There’s some fees associated with OTC markets. There’s some computer stuff to the degree that we buy electricity for cryptocurrency, there’s that. That’s the primary stuff. Directors don’t get cash compensation. We give them some options to buy FRMO stock and sometimes the stock goes up and they exercise it and sometimes the stock doesn’t go up and they expire unexercised and that’s what directors get paid. So we’re not giving cash compensation to directors.

Occasionally we have a legal bill, nothing big. There’s a question, we need research, can we do X or should we not do X? And we go to an outside law firm and that’s an expense and doesn’t always happen. So that’s a variability. Those are basically the expenses. I don’t think I’m missing anything important. So anyway there you have it. If you need to break down, I’m sure we can obtain that view.

Thérèse Byars

Next is Charlie Munger recently celebrated his 99th birthday this January. Unlike Warren Buffett’s permanent capital vehicle, Berkshire, FRMO has not explicated plans for any type of succession. While I’m sure all FRMO shareholders and Horizon clients would wish for current management to remain at the helm of capital allocation for as long as possible. And I recall that in past meetings, management has stated they have no intent on retiring. Could management detail what they see as the most likely outcome for FRMO shareholders once Mr. Stahl and Mr. Bregman are no longer running the show, any succession plans regarding FRMO management?

Steven Bregman

Well, let’s just say this, there are people who could probably do it. Talk to a variety of people that are not FRMO employees right now, but I’m sure they’d be interested in doing it. So it would be someone or some persons, they’re currently active in the investment management realm and obviously going to be younger than us and we want them be active investment management realm. Why don’t we want to make them employees of Horizon or something? Because we want to see what they would do unconstrained by us. So if there were our employees, whether we give them total of freedom or not even implicitly. They’re going to be operating on our constraints. We don’t know what they’re going to do. They got to be running their own show. So maybe a way to do it is they’re running their own show, they’re doing whatever they’re doing.

Maybe when the time came, we would take a FRMO merged with whatever their enterprises. Now they’re going to run the show and they’d be unconstrained by us. Other than the fact that we respect what they’re doing but they’re different people and maybe that’s the way it should be. So that’s the way I see it happening. So have people in mind. But they have to be at least 20 years younger than us, maybe more if we can get that. So maybe 25 even, we can achieve that. But then on the other hand, we’re not going to let any 25-year-old young people do it because number one, they’re not seasoned.

Number two, we don’t have the experience of seeing them operate in the variety of unpleasant investment environments that happen from time-to-time. So anybody we’d even consider would’ve to be someone that has, so to speak, they’re battle scars. So that be somebody that’s been around for at least 20 years in the business. So that’s basically the plan.

Thérèse Byars

In the previous earnings call management mentioned that Horizon Kinetics was continually buying shares of FRMO. Could management give some detail on the valuation model that they use to look at FRMO to decide when to buy back share?

Murray Stahl

Well, let’s put it this way. Other than restricted periods, we’re always buying back shares. So we filed one of these programs where we’re able to buy back shares every day. So we don’t have a model that we’ll buy back shares in month one, but then the stock went up and we’re not going to buy it. We’re not buying back shares at that month due. We’re constantly buying back shares. I myself, personally buy a small number of shares to supplement.

What Horizon does right now it’s on the restricted list, so I can’t buy it. I think a day or two after this phone call, it comes off to restrict list and I will assure you, I will commence bank. So, but we don’t have a model and we don’t really need a model. And the reason we don’t really need it because FRMO is a company with a lot of optionality and it’s very hard to have a model to embrace that.

But let’s look at it this way. Take any one of the variables. I personally talked a lot about cryptocurrency today, but I’ll use it. So we have a number of vehicles and cryptocurrency. We can do a lot of different things with them. We’d like to grow them. We actually are in the process of growing them. If cryptocurrency became the biggest of the asset classes, which I personally think that’s the outcome, you’ll be very happy with the price of FMRO.

In interim because obviously that’s not happen today little by little, we are growing the cryptocurrency assets and we’re growing the cryptocurrency businesses. It didn’t make sense jump in with both beat so to speak, but the reasons I mentioned earlier there was a real valuation problem, or let’s put it not, there was more than just evaluation problem. There was a tremendous money relative to what cryptocurrency could absorb come in cryptocurrency.

And without reckoning the basics of cryptocurrency, you just have to know that if you’re in a mining business, 50%, assuming the cryptocurrency price remains the same, which has to be your basic assumption, 50% of your revenue is going away every four years. Now in point of fact, over most of the time the cryptocurrency is going to rise, but your equipment’s going to become obsolete. So you shouldn’t expect a much longer life than three years. It turns out that because we have the repair business, we’ve been able to use certain machinery for more than three years.

We’ve been able to pull it off, but we had no right to expect that. It just so happened. But it’s not going to last for much longer than three years. Maybe it’ll last four years; maybe it’ll even last four and a half years. Ultimately it goes away and even before it goes away, it becomes less profitable and becomes less profitable because it’s less efficient. None of that was reflected in the cryptocurrency environment, therefore we had to stay away from investing much as we are interested in cryptocurrency. So that’s that.

But doesn’t mean that in any way we think these things are undervalued. I think we’re one of the few companies, if I can promote myself for just a moment, I shouldn’t do it, but I will. We are able and the figures are available to anybody who cares to look at them. We are able to navigate a brutal, what they call a cryptocurrency winter. We were able to navigate that. Nobody else seemed to be able to do that. So I’m actually very proud of that. I didn’t enjoy the crypto winter, but we were prepared for crypto winter and I think that’s personally worth a lot anyway I’m buying FRMO. So take it for whatever it’s worth.

Thérèse Byars

Do the co-founders of FRMO own basically the same percent of ownership of Horizon Kinetics, LLC, even though Horizon Kinetics is private, both companies share management and make similar investments?

Murray Stahl

Yes. They’re — the answer is it’s not identical for a whole host of reasons, but it’s similar. So if you were to see the ownership list of Horizon, it’s not radically different than the ownership list of FRMO. As I said, there are a lot of reasons. One of the reasons is I’m personally, I’ve been buy, I’ve never sold a share of FRMO. Only you bought So Horizon’s a private company we’d never bought or sold shares and FRMO you’re able to do that. So I’ve purchased shares, so my ownership has gone up a little bit. We’ve done some other types of transactions that have altered your ownership structure a little bit, but not radically. So you would recognize the basic shape of the ownership structure if you were to see the shareholder list of Horizon Kinetics.

Thérèse Byars

When do you think you’ll be able to raise FRMO listing, the FRMO listing to the NASDAQ?

Murray Stahl

Well, all I can say is its Mea culpa. It’s totally on me and I keep saying I’m going to do it and then I just don’t have time to do it. So I just didn’t do it. I’d like to do it and as you can see involved in a lot of stuff. So I just haven’t add, I can only do so much. So I’m doing meetings like this, I’m involved in all sorts of issues that you can read about. I write a lot of research reports, I’m doing a lot of stuff, so I just don’t have time to get to it, but it’s a priority with me. So I’m going to do it at some point and you won’t be disappointed.

Thérèse Byars

Yahoo Finance reported on November 25th, 2022 that in a note to their shareholders, Digital Currency Group, Founder, Barry Silbert attempted to calm investor’s nerves, investor nerves about the financial health of Digital Currency Group’s subsidiaries including Grayscale Investments. My question is, does management have any concerns about the solvency of the Grayscale cryptocurrency funds that FRMO owns? Do you have any concerns over the solvency of Digital Currency Group?

Murray Stahl

Well, we at Grayscale no concerns whatsoever because they’re just funds that own a certain amount of cryptocurrency. In the case of the Bitcoin Investment Trust, it just owns Bitcoin. It’s custody, it’s custody it securely, it’s segregated. I have no concerns whatsoever. In the case of Digital Currency Group, there is some debt, but the debt isn’t owed. I think something like 10 years. This was in the public realm. There were articles, that is owed for 10 years and all you really need to do is take the C on the Bitcoin Investment Trust, multiply by the AUM, you can figure out what the revenue is. So I don’t think there is any problem there, at least none that I can see. So I’m not really worried about. In any event on a cost basis, we don’t have a lot of money in Digital Currency Group.

The issue is what is it worth right now? And there you can get a lot of different numbers. Naturally we want it to be worth as much as possible. I think the current issues as controversial as they are, they’re not going way tomorrow. But I believe they’re in principle solvable and you know, they’ll just have to work through them and solve them. That’s what happens in crypto winter and that’s why, and it’s such a Digital Currency Group, it’s every company in crypto with the exception of us. That’s why I promote myself shamelessly, which may almost, never do a little while ago. Lots of companies threw a lot of capital at something that they ought not have thrown a lot of capital at. And we had the complete different strategy, created a lot of problems for people and they’re not the kind of problems that you can master in a week or a month and they’re quite a few of them.

You just have to work through them I guess. And we had a completely different methodology and we don’t have any issues like that. So that’s the flip side of, when you want to be aggressive, I mean at the time I really shouldn’t blame people. It made a lot of sense. So let me just go into a little detail. Why did it make a lot of sense? Well, two reasons. The first reason is the basic premise of crypto. So it could be argued that, again this isn’t my, this isn’t, what my strategy is. This is not my strategy. I’m just arguing positively rhetorically for somebody else’s strategy to say why did it make sense at a time? Although it didn’t make sense to me. Well, if you believe crypto’s going to outperform the dollar, which I believe that too, then it seems like the next logical steps should be, well then why don’t you borrow money in dollars and you’ll eventually pay back in depreciated dollars relative to your crypto investments.

Makes so much sense, right? Except it’s problematic to do the accounting that way. I understand that’s the GAAP accounting and that’s what’s required. But just because that’s required doesn’t mean you have to think that way. You can think any way you want. So let’s just go through, compare and contrast the way we look at things. When you buy a cryptocurrency mining machine, it may not be apparent to you, but you don’t pay dollars for it. It’s priced in dollars. But the manufacturers don’t want dollars, they want crypto. So when you are buying equipment, the relevant question is, I’m buying a certain number of machines, you’re not buying one, you’re buying lots of them, you’re buying a certain number of machines, it’s costing you a finite amount of crypto. The relevant question is, over the operative life of the machine, are you going to get more crypto than you paid for the machines?

And if the answer is yes, which it may not be, if the answer is yes, well how much more is that going to be? So for example, if you paid a 100 crypto, a 100 Bitcoin let’s say for a group of machines to make it sensible, you’re going to have to get over life in machines at least 160, maybe 175 or 180 Bitcoin back. If you can’t see that happening, you ought not to invest in the machines. So the halving, that’s why I refer to halving, the halving is known in advance. You know how many days you have. So the halving is on a date certain, so you can calculate, well, do I have enough time to get, I’m usually using the number 180 as an example. If you can’t see earning 180 crypto over life machine, when you paid a 100, a 100 crypto for the equipment, you have to cease investing. So the performance of the dollar in relation to Bitcoin or Bitcoin in relation to dollar is irrelevant because you’re raising dollar, you’re not paying dollars.

That’s the mistake everybody made. And why use equity when you can use debt? Now we don’t like the equity for reasons I mentioned earlier because it’s a perpetuity. We don’t want to use debt. Debt we don’t use as well. So we are trying to create all our capital internally or at least most of it internally, which is another thing people don’t want do. So you further complexified the problem. You’re bringing investors with their capital and now you’re trying to figure out what is the price of Bitcoin in relation to the United States dollar at any point in time. And remember that debt is due on a certain fixed date that’s why they call it fixed income. So even if Bitcoin outperforms dollar in the fullness of time, how do you know that Bitcoin is a game performed dollar during the life of the fixed income liability that you’ve assumed, you don’t really know that do you?

So therefore it makes more sense to operate entirely in crypto. And by the way, my second point is, what’s the purpose of crypto? The whole purpose of crypto is to be outside of the dollar fiat currency system. So if you want to be outside the dollar of fiat currency system, be outside the dollar currency fiat system and calculate everything in Bitcoin because that part of the business, the Bitcoin business, you’re operating outside dollar system. So why would I reenter dollar the system to make investments and be subject to the mutability of the dollar, even though I think in the long run Bitcoin will do better than dollar. I didn’t want that. So now you see a difference between their strategy and our strategy and you also further see, if you forget about our strategy for a second, how reasonable all those strategies remember, it’s the majority of people, I’m not criticizing them, I’m saying that those strategies ex-postulated the way I just ex-postulated them, they’re entirely reasonable.

They’re even defensible, but they’re embracing a risk that I chose, I have no intention of ever undertaking that risk and I won’t do it and I didn’t do it. So you can see why the majority of people felt otherwise because they treated the currency of Bitcoin as if it were the Euro or the Yen or some other type of currency and it’s not, because those are investments. You could have undertaken an investment in Europe or Asia or somewhere else and you can make reasonable assertions, although they might be wrong, but how other currencies will operate, because they’re all fiat currencies.

Bitcoin is not a fiat currency. It operates in accordance with certain strictly defined rules. So in the, in a finite time period, you don’t really know what’s going to happen to crypto, especially if people are incognizant of the effect of their focus in having, which they weren’t. So anyway, but I’m sympathetic to what people did. I just don’t agree with it, but it’s entirely reasonable. Just because something’s reasonable doesn’t mean it’s right, it’s reasonable, it’s defensible. It was just the wrong thing to do and we didn’t do it. But that’s what makes a market, I guess we do different things, but I’ll never criticize it on grounds of unreasonability. It was reasonable. So all companies did that and I think they’ve learned their lesson and it just going to take varying amounts of time to work through those problems and we’ll see what happens. So what’s next?

Thérèse Byars

Okay, what does management make of how the FTX contagion is affecting Digital Currency Group and its subsidiaries, Genesis and Grayscale given the FRMOs and Horizon Kinetics funds main Bitcoin exposure comes from GBTC?

Murray Stahl

Okay? It’s not, FTX is not impacting it. FTX is very simple. FTX is just embezzlement. So there’s a certain amount of money FTX, whether it’s currency or fiat is irrelevant, it’s just purloined. FTX is very simple. The problem that you’re referring to is, what is the discount to net asset value of the Bitcoin Investment Trust? So there are people who believe that the liability at Digital Currency Group could theoretically be accelerated and they’ll have to pay for the asset and they’ll have to, their biggest asset is the shares they own at Bitcoin Investment Trust, which in theory, they could be forced to hand over the, I don’t believe it’s likely, but if you want to paint the gruesome scenario that some people paint, so in relation to FTX, well there’s liability, you have to pay it and you’re going to hand over shares of the Bitcoin Investment Trust, which of course the people get it don’t want. So they’ll just throw it on the market and won’t be enough people to buy it and for that reason it will trade at a big discount to an asset value. That’s basically that scenario.

Personally at this discount net asset value, I think Bitcoin Investment Trust, GBTC is a great buy. And just so you know, I personally bought some today, just so I really did. I’m not going crazy and buying tremendous amount fit, but I bought some, so I don’t know how long the discount to NAV is going to last. Chances are it’s not going away in a day or two, but eventually there will be Bitcoin ETFs and eventually this is going to be a Bitcoin ETF and it’s going to trade at NAV and I believe the Bitcoin price is going to be higher. So let’s assume, of course I could be wrong. So don’t go by what I say, but if Bitcoin is going up X percent, whatever that number happens to be, and you are buying the Bitcoin Investment Trust at roughly half of net asset value, well if it traded an asset value and Bitcoin didn’t go up, it just traded NAV and you’re at 50% of NAV, you’re doubling your money, it’s a 100% rate of return. Now Bitcoin rises X percent and it trades at debt to net asset value, you can see how robust that return is. So I personally think it’s a really great investment. Anyway, we have lots of shares of it and I wouldn’t mind having more shares of it. That’s it.

Thérèse Byars

The next question is related, does management have any thoughts on the FTX crash and how this may affect Bitcoin and institutional adoption of Bitcoin as a monetary asset going forward? This crash appears to be unique from other previous Bitcoin cryptocurrency related crashes, for example, Mt. Gox, in that this most recent crash has affected a large number of institutional investors, who had stuck their necks out for cryptocurrency. Is this a correct reading of history? Does management with their unique position in running an asset management business themselves see any growing once bitten, forever shy sentiment among institutional investors regarding cryptocurrency or Bitcoin in particular?

Murray Stahl

Okay, well, lot of lot of things I can say about that. Let’s just start with this. So this was embezzlement, this was fraud. So in its own way, in fact patterns a little bit different. It’s not that dissimilar from Enron, it’s not that dissimilar from the Madoff scandal. So the Madoff scandal, did that stop people from hiring outside investment advisors, the Enron scandal did that stopped people from buying publicly traded securities? I mean at the time it was traumatic, but it’s basically the pledging and looting of client assets. Basically it’s what happened. So had it not been a crypto company, had it been a normal financial advisor, you would have had the exact same outcome and they could have the exact same outcome in dollars. The fact that it had to be crypto had absolutely nothing to do with the ultimate collapse. So they were a money market fund and they were doing nothing other than buying United States treasuries. Well, you steal all the money then you’re not going to get any. So it’s really that simple.

The company FTX had a very high ESG rating. I think by the ESG rating companies it had the highest rating you can get. And that’s the problem, that’s the problem with ESG and the way things are rated. Just because I have no idea to what degree they complied or did not comply with ESG and I have no idea how these ratings are compiled, but it had a high ESG rating so you could see why an institution would say, well it has a high ESG rating, it must be okay and obviously that was not true. So having a high ESG rating is not the same thing as having probity and what that lacked is probity. So I don’t think this is in any way going to lessen or diminish or delay the growth of cryptocurrency as an asset class, because it has absolutely nothing to do with cryptocurrency and it’s just that’s not made clear in newspaper articles, whatever, probably because the people don’t realize who write them, what actually happened, but basically it’s a case of investment.

Now, if you wish to verify what I said, the bankruptcy trustee that was appointed to liquidate FTX testified before the United States Congress and that testimony is in the public domain, you can read it and everything I just told you, that’s where it comes from, so it is testimony under oath. It would be really great if the articles referencing this subject could include the appropriate testimony from the bankruptcy trustee, but it didn’t for good or real, but it would be really nice if it did, so maybe at some point, someone will write about that subject. But anyway, that’s where we are. So I don’t think this is a setback for cryptocurrency because it has nothing to do with cryptocurrency. It just so happened this person was involved in cryptocurrency, but there are people who steal dollars and they do it all the time.

You don’t say, I’m going to stop using United States dollar because someone stole all the money in a company and nothing but dollars in it. So I don’t think you should reach that conclusion with crypto. And I understand in the real world people will reach that conclusion, but I don’t think in any way this is going to diminish the progress, that’s being made in crypto. And you can see it if you follow what’s happening on Chicago Board Options Exchange and you’ll be seeing other things happening in due course in other publicly traded exchanges. So just have to keep your eye out for that.

Thérèse Byars

In a 2021 interview, Murray Stahl gave the, gave with a podcast called In the Area, one of the topics covered was the disintermediating effects that Bitcoin and openly discoverable blockchain transactions would have on society in the context of inverting the many to 1, individual to Google to advertising relationship into a one to many individual to advertisers relationship. Wherein advertisers directly pay individuals for the right to advertise to them based on their transaction history. Is management currently investing or investing in or looking at companies that would be along the path towards facilitating this kind of shifting advertising dynamics? For example, for an example though not at all a recommendation, there is the opensource brave web browser’s basic attention token, which seeks to build out a distributed micro/nano payments ledger of crypto tokens minted on proof of user attention given to advertises.

Murray Stahl

Yes, well I’m, I looked at that, I haven’t bought that yet. I’m not sure that’s the right way to achieve it. There are many, many different approaches to this subject. I’m confident someone is going to come up with an approach or I’m confident many people will come up with approaches. My own view is, the way it’s going to start, it’s going to start with assets that people have. They might not even know that they have. So for example, X, Y, Z individual has a subscription, maybe it’s a software, maybe it’s to an online magazine, whatever, they’re not even aware that they’re paying $20 a year on their credit card. They don’t even look.

And I believe someone is going to start mining that data, put it on a blockchain, so everyone can look and they’re going to become cognizant that they have assets. Similar thing is going to happen to other digital assets. It’s going to start with digital assets. And those digital assets are going to be monetized. And whoever does that is going to have a great advantage because you’ve now caught the attention of very large numbers of people, literally tens of millions of people. After that, it becomes relatively easier, not easy, but easier to persuade those individuals to entrust their data to the blockchain.

And then there’ll be a database of data, and it won’t be gathered by the leading technology companies. It’ll just be gathered by the individuals through this mechanism and they’ll be able to monetize their data if they feel like monetizing their data, which some people may not want to do, but a lot of people will monetize their data. And it can start by something as simple as, do you wish to see an advertisement on a certain subject? And anyway, I believe that’s how it’s going to evolve. So in my travels, what I’ve seen the most software development on that’s within striking distance of realization is the mining of data and the possible mining monetization of digital assets anything relating to digital assets and this monetization, that’s, I think is going to be the first effort and we’ll go — have to go from there.

Steven Bregman

Murray, I thought to go back to a prior question. It was about the once bitten, twice shy sentiment that might be feared among institutional investors regarding Bitcoin. And I understand the reason for the question, but in point of fact then, you gave a couple of factors earlier when you spoke. You can measure that. You’ve explicated a number of different factors overtime that describe various facets of the cryptocurrency industry and its robustness or lack of robustness. And there are all sorts of markers of Bitcoin usage for instance, such as the number of active wallets or the concentration, profile of coins, or the number of lightning network channels and the number of nodes and servers. You can look at institutional changes, whether they’re private institutions like a Fidelity or, banks that are building robust custody and exchange and pricing, systems and platforms, which you don’t do that lightly and Central banks too. And you could make a list or a table.

Actually I suggested this to somebody, one of our analysts yesterday. You could make a list or table of all these various factors. So you come up with a dozen factors and then track them over time. Maybe you just make a, an index of, basically it’s about acceptance that you suggested very early on it’s a money and money is that acceptance. And there are different really measures of how broad and deep acceptance is continuing and that hasn’t stopped. In fact, it’s only getting deeper, but that’s the way you can, anybody for themselves can address that. And maybe we’ll come up with something of our own, if it seems to hold water.

Murray Stahl

Well, true, it’s definitely true. It will be addressed in due course. If you want something, just the quick and dirty the discount NAV or the Bitcoin Investment Trust, it’s a measure of sentiment in a way. So if you want something very easy to do, that’s a thing to do. And if you want something a little bit more difficult but not much more difficult to give you a better sense, I would say if you take the single asset digital currency products, so it’s Litecoin Investment Trust and the Ethereum Classic Trust and Zcash Trust the seated discounts, do NAV of those things and look at them, I think you’ll get a pretty good indication of what the sentiment is. And but we’re on the verge of just tremendous things in crypto. So I think for the industry quite properly is saying I need to be shown success and they’re right. They want to see the success and most people will want to see success.

Incidentally, you don’t need the world to be invested in Bitcoin for this to be incredibly successful. So don’t forget this year New York Stock Exchange, democratization meaning the average person start owning stock, that didn’t happen until the advent of IRA accounts in the 1980s and beyond that New York Stock Exchange was founded I think in 1797 or something like that. So it took almost two centuries to get that. People made a lot of money in New York Stock Exchange without a lot of stock being owned by the average person. You don’t need to have everyone and that’s the point I’m trying to make.

So it’s going to be successful with or without the participation of the vast investment public. It’d be nice to have them. We don’t need them in the process of happening even without them, just something to be cognizant of that. So other factors in that, does the average person own bond futures? I think not. And look how big the bond futures market is. Does the average person trading currency features? I think not. Look how big the currency market is. Does the average person trade in oil futures? Look how big that market is.

So, and by the way, the derivatives market, I don’t want to compare Bitcoin derivatives because it’s not the right analogy, but the derivatives market is bigger than the bond futures market. Derivatives market is hundreds of trillions of dollars. Does the average person trade derivatives? No, they do not. Look how big that market is. So I don’t think that the, the necessary condition of success is broad public adoption. Nice to have it. Eventually I think we’ll get it, but I’m not waiting for it personally and I don’t think I need it. Anyway, I hope that addresses that question.

Thérèse Byars

The last question is also related. Are you looking at FTX claims? Do you believe they will have an outcome similar to Mt. Gox’s claims?

Murray Stahl

Okay, am I looking at FTX claims? The answer is no. And I’ll tell you exactly what my reasoning is. So Mt. Gox, there was a hack. Some portion of the Bitcoin was stolen and we knew what that was. So what the management of Mt. Gox society do is, so it wasn’t every account that was broken into, it was just if you add up everyone’s account, X percent, whatever it was of the coins were stolen. But most accounts were in touch. So some accounts had no Bitcoin in it, some accounts lost some of their Bitcoin, some accounts lost no Bitcoin. Most accounts lost, no Bitcoins.

Instead of letting just some accounts suffer, what they decided to do in Japan was they decided to socialize losses. Everyone had the identical outcome in terms of the loss. That’s the way it worked there. So we knew what we were dealing with. We knew, okay, they socialized losses, we knew what the losses were, there’s going to be some bankruptcy fees, we’ll have to wait a certain amount of time. So the banks reclaim traded a discount appropriate large discount to the amount of Bitcoin we were likely to receive. We knew it was going to be a number of years. This is different. And the reason it’s different is, we don’t know what was there in the first place.

We don’t know exactly how much was stolen. All we know was most of it. So when someone says is a claim that trading at a big discount to its value, well that might be true except we don’t know what the value is. We don’t know what the bankruptcy trustee is going to be able to recover and then there’s a further complexification because the Bermuda government has made the assertion that some of the claims are going to be actually seized by Bermuda government. Now obviously the holder is not going to be very happy with that. That’s an issue. It’s got to be resolved in court. So I don’t know how these things can possibly be noble at this point in time and therefore with regard to the FTX I’m not doing anything whatsoever. I’m not active in it. I mean, I look at it because intellectually it’s interesting and there’s no harm in looking, but not doing anything whatsoever. So I hope that answers that question.

Thérèse Byars

And that was our last question for today.

Murray Stahl

Okay, well I thank everybody for their questions. I thought they were pretty good and I enjoyed answering them. If there’s something that occurs to you and we didn’t cover, that we should have covered or it’s a brand new question, don’t hesitate to contact us because we want to get you an answer if we can and of course we’re going to reprise this in about 90 days. And thanks so much for joining us today and thanks for your support and all that remains is just to say goodnight and we always stay and answer every question. So hopefully you enjoyed as much as we did. Thanks so much.

Steven Bregman

Good evening.

Murray Stahl

Good evening.

Thérèse Byars

That ends our call. You may now disconnect.

Question-and-Answer Session

Q –