FRMO Corporation (PNK:FRMO) Q2 2024 Earnings Call Transcript

FRMO Corporation (PNK:FRMO) Q2 2024 Earnings Call Transcript January 16, 2024

FRMO Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Therese Byars: Good afternoon, everyone. This is Therese Byars speaking, and I’m the Corporate Secretary of FRMO Corp. Thank you for joining us on this 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 fund. 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 website at frmocorp.com.

Today’s discussion will be led by Murray Stahl, Chairman and Chief Executive Officer. He will review key points related to the 2024 second quarter earnings. A replay for this call will be available on the FRMO website until the summary transcript is posted. And now I’ll turn it over to Mr. Stahl.

Murray Stahl: Okay. Thanks, Therese, and thanks, everybody, for joining us. I’ll just go right into it. This quarter, I would argue was a milestone quarter for us. The reason I say it was a milestone quarter for us is, you’ll observe that our biggest position, TPL, was actually down for the quarter, and you can see the line of unrealized losses. Of course, that’s on all our realized losses because we’re consolidating HK Hard Assets, but it was down, however, it was more than balanced by two other positions. And the first one was Winland, formerly known as Winland Electronics, now we call Winland Holdings, which is where we’ve been doing a lot of our cryptocurrency mining work, and you might observe if you line up all the quarterly financial statements.

And then you’ll see we’re gradually increasing our position in. And as of quarter-end, I think you can look it up on the on the summary page on the website, but I think we’re up to 1,593,000 shares, roughly, and we bought more subsequently. So I think we’re around 35% of Winland. More about that in a minute. And then the other position or the other positions is the various ways we express ownership of bitcoin directly, not the least of which, actually most important of which is the Bitcoin Investment Trust, GBTC. So this was the first quarter that the crypto earnings actually outweighed TPL. And incidentally, we increased our exposure to every one of our holdings. We might also remark that despite all of that the investing, and you can see how much money we spent, we increased our cash balance, not decreased our cash balance relative to fiscal year-end.

So – and our own shareholders, not the consolidated shareholders, that we were consolidate – that were noncontrolling interest in the HK Hard Assets, but our own equity interest now exceeds $206 million. So there’s a substantial investment here with substantial liquidity and we expand in crypto little by little every quarter. So maybe the first thing I should tell you is why do we expand little by little every quarter when no one else seems to do that. And I know it might be excruciating to watch, but it’s necessary to do it that way. The reason it’s necessary to do it that way is because of two factors in the world of mining, the one is, that no matter what point in the cycle you are, this is a cycle, of course, relative to the having in bitcoin, you’re always every passing day you’re approaching yet another halving.

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Q&A Session

So I would look at the halving or I would encourage you to look at the halving the following way. The block reward is kind of is cut in half. So another way of saying, if you want to get the same block reward for your mining activity, essentially, you have to have twice as many machines. Now in practice, you have to have many more than twice as many machines, why do you need many more than twice as many machines if the block reward is cut in half? Because the aggregate hash rate, meaning number of machines you’re competing with in the entire bitcoin system is ever growing. So if you want – even if it wasn’t halving, you have to grow your equipment sets first problem. The – so if you have to have twice as many machines to get the same number of coins, it’s another way of saying it’s mathematically the same as if the cost of mining just went up.

And that’s, by the way, one of the reasons that bitcoin goes up over time. So halving plays a very important role, and it would be ever cognizant of that. So with the halving, if everything else was stable, which it never is, but if it was, it would be predictable, very high return security, probably no security is as predictable or as high return that you’re ever going to encounter. So the second factor is because you can think of it as if you need twice many machines to get the same number of bitcoin, therefore, your costs are rising, you’ve got to be very, very cognizant of your usage of electric power. So you have to have machines that will be ever more economical electric power usage. So no one seems to believe me when I say this, but I’ll repeat it, yes, again, that yet again, the last seven or eight years.

the electric power usage per transaction is down 96%. Doesn’t mean the electric power usage of entire system is down at all. Electric power usage system is up, electric power usage per transaction is down 96%. And that has to continue, and I probably will continue. And the reason that’s relevant for going slow in terms of buying equipment is, when that happens, your equipment could be obsoleted. So what you’d like to do is you’d like to constantly be growing your – the amount of crypto you have, which I think we’ve done, if you look at all the quarterly statements. And you’d like to be doing it in such a way that you’re always in a position to buy the most up-to-date equipment. And you bought a small enough equipment so that you’ve managed to use it completely and thoroughly during the cycle.

So we’ve been very careful buying equipment. One of the things you’ll see in our cryptocurrency mining operations, we’re now operating fully depreciated equipment. How long we’ll be operating that is a question that I don’t know the answer to, but the goal was to get to the point where we can operate properly, fully depreciated equipment. Our policy is to depreciate new equipment over a 2-year cycle and used equipment over a year or sometimes 1.5 years. So we’re very conservative of our depreciation. In Consensus Mining, I believe, in the round numbers, we’re up to 266, roughly, I’ll look this up, for you in a second because I wrote it down. I beg your pardon. We’re up to 265 bitcoins Consensus Mining. We also – in Consensus Mining as the most recent reckoning, this is data as several days ago, but I think it will relevant.

We have 6,618 Litecoin. Litecoin, you might be aware, is basically the same monetary policy as bitcoin is just started later. So at the moment, it has a modestly higher inflation rate, but lend up the same – at the same point as Bitcoin. It’s actually not more profitable to mine Litecoin than mine bitcoin. And you can make an argument for Litecoin. If Litecoin ever were to have the kind of use cases that bitcoin is going to have or at least some of it, the Litecoin aggregate hash rate would grow in relation to bitcoin’s adequate hash – aggregate hash rate and you make a lot of money of it. And also, we own as of several days ago, in other words, most recent reckoning, we own 265 – excuse me, 38.9 I beg your pardon, 38.9 Bitcoin Cash. Now Bitcoin Cash is an interesting sort of animal because Bitcoin Cash has the exact same monetary policy as bitcoin itself.

It’s just that the bitcoin hash rate, Bitcoin Cash hash rate, is maybe half of 1% the size of the bitcoin hash rate. Therefore, the market capitalization of Bitcoin Cash is something like 0.5% or 1% of the bitcoin hash rate and the bitcoin market capitalization. And as I said, if there was ever a use case for a bigger block size that one day, there might be you can make a lot of money in Bitcoin Cash. So it’s kind of interesting. One of the reasons is going back to Litecoin, that Litecoin is more profitable than bitcoin, is Litecoin is merged mining, it’s both good and bad one the same mining rig, you can mine two coins. You can mine Litecoin and you can buy a Dogecoin. Dogecoin has a very profligate monetary policy. I personally don’t find it all that interesting.

So we get paid entirely in Litecoin. We take our block reward entirely in Litecoin. Now the more expensive Dogecoin is the more of your electric bills you can pay with Dogecoin and therefore, the less money it cost to mine Litecoin, therefore, the less valuable Litecoin is. So theoretically, since I would assert Dogecoin has a profligate monetary policy, Dogecoin is going to underperform Litecoin. Dogecoin might even go down in value if it gets diluted enough, and to the degree, Dogecoin underperforms Litecoin, Litecoin is worth more money. And just for that reason, you may make money of it. Anyway, we are in the process of buying some L7 miners, which is what mines Litecoin for Winland. So Winland, before very many eight weeks are out, we’ll be mining Litecoin as well as bitcoin.

I think we’re the first of the publicly traded miners to mine material amounts of Litecoin. I don’t think any other publicly traded miners do that. Now Winland is public, Consensus is going to be public, hopefully, not too distant future, so you’ll be able to see their financial statements. And I hope you’ll be impressed with degree of liquidity we maintain. And I hope you’ll be impressed with degree to which we consistently increase the crypto holdings, which is very different than what other companies do. And we intend to increase our exposure in this field. So the crypto business is alive, it’s healthy and it’s growing and – we didn’t know seven or eight years ago when you started the venture if crypto was a viable business or not. We just thought we knew enough about it to be able to make some reasonable assertions about it and make some money at.

So that’s what we ended up doing. And so far, it’s working out well. So a couple of other things I’ll point you to in the balance sheet that I personally find intriguing. You can see why we’re a long-term investor. If you look at our balance sheet, November 30, and you look at deferred tax liability of $25 million, longer we hang on to what we have, the more money we’re making off this, which is essentially an interest-free loan. So you really want to be long-term investors. That’s not a small amount of money even to our now expanded shareholders’ equity. I’ll also point you in direction on liability side of balance sheet in security so short. So these are largely the dysfunctional ETFs, the path-dependent ones. We keep selling short. And you’ll observe as of the most recent reckoning, $10,683,000, in short sale proceeds.

And a market value of $1.291 million. So it’s a not insignificant part of our cash generation and we continue to do it, and we’re likely to expand it when opportunities present themselves. One other thing I’ll point you to investments in securities exchanges, our biggest holding of security exchanges is the Miami Options Holdings, which is colloquially known as MIAX, hasn’t come public yet, but it might come public one day, and I would pay attention to add valuation. That’s current valuation as a private company. You could look at their website, you can see how well the company is doing. And I expect that to continue. So we’re very, very excited and pleased with what’s going on that at MIAX. So in summary, we have our crypto businesses. We have our the exchanges businesses.

We have our own investments. And last but not least, we have Horizon Kinetics. So Horizon Kinetics is in the process of doing a reverse merger into a company known as Scott’s Liquid Gold and it’s publicly traded. So there’s going to be – when this deal closes, I guess, theoretically, there’s one now, a publicly traded valuation on Horizon Kinetics. So we won’t need to guess or estimate what the value of our investment in Horizon Kinetics is, we’ll be able to see it realized. So I would pay attention to that. I’m expecting, but don’t hold me to it, this deal to close sometime around the end of April. So let’s say, with fortune, April 30. And we maintain our proportionate interest in Horizon Kinetics. So that’s a lot of activity, a lot of public trade securities.

So Consensus coming public, Horizon Kinetics is coming public. A lot of interesting things going on I could probably continue, but I’ve given you a little tour of what’s happening. We’ve been very busy. So I think the best thing to do is maybe invite whatever questions you have to fill in the gaps of what I didn’t mention, and maybe you could kick it off Therese, just tell me what the question is, and I’ll be more than delighted to address them.

A – Therese Byars: I’ll be happy to, Murray. The first question, my impression is that most of the total FRMO assets on the balance sheet are valued using market prices. How much in one assets are not valued in that way. what is the best way for an investor to value FRMO, more specifically, given its assets, especially the increased attention to cryptocurrency? Why should it be priced/traded for more than the net asset value?

Murray Stahl: Okay. There’s a lot of questions there. So let’s say, what is – we take everything we can take it market, we take it market. So what’s easier to talk about what’s not in market. What’s not in market is our investment in MIAX. It’s – our holding is it’s a little bit above cost. The reason it’s a little bit of net greatly but reason it’s a little bit above cost because MIAX did some deals – equity deal subsequent to our transaction and which is using that value, it’s not a market price negotiated price step. We also have on the books at cost holdings of digital currency group, which are people on grayscale, which among are things sort of people who operate the Bitcoin Investment Trust that’s now in the process of becoming an ETF, and that’s at cost.

And then last but certainly not least, is Horizon, which you see on the balance sheet, it’s not a cost. It’s cost plus whatever accumulated earnings have been retained in the business. Horizon Kinetics has a pretty big dividend payout ratio. FRMO doesn’t pay a dividend. Horizon Kinetics pays, I think, pretty robust dividend. We received that dividend. So whatever is left over after the dividend gets put back in retained earnings. So you’re not seeing a market net, however, you will see a market net if you figure out what our proportionate interest is in Scott’s Liquid Gold. So to answer partially the question, I’ll come back to it in a second. Why should it trade at its market value? Well, we don’t really know what the appropriate valuation should be at MIAX.

We don’t know what the appropriate valuation should be a digital currency group. We will know, but we do not know at the moment what is the appropriate valuation of Scott’s Liquid Gold, which is really going to be Horizon Kinetics, the market will tell us that. Right under the Horizon Kinetics notation on the balance sheet, you will see this revenue share. So we have a revenue share. In other words, we get – it’s a little bit less than 5% revenues of Horizon Kinetics. So the question is, what is that worth? And I guess it depends on what the revenue of Horizon Kinetics is. I guess it depends on how much you can grow or fail to grow, reasonable minds may differ about what it’s worth. So we have it on – we created a number years ago, which I don’t know how relevant it is, it’s never been changed with a public valuation.

People have more insight into it that might change as well. So I guess the trading price of Horizon Kinetics – I mean, trading price of FRMO, you like, reflects what some people believe might be the valuation of all the entities I talk about. And I left out one, which we’re going to add in right now, Consensus Mining, it’s not a big deal. But we still own it, public yet, we’ll be public, and that will have to have a valuation put on. And then you’ll observe the real estate owned, that’s on the books at cost. And the question is, what’s that worth? And it might be worth – some would argue it’s worth more than what it’s on the balance sheet for. So differential between those public entities – the most publicly traded entities that we can value and the ones we don’t or what people assume should be the value, whether that’s right or wrong, we’re going to find out in the not-too-distant future.

So we’ll have to see what happens. So I hope I addressed everything. I hope I did. I think I covered all the main points on that. Anyway Scott’s Liquid Gold, if you’re interested is SLGD. And you know what we’re going to own for, we do own Horizon Kinetics, you could look at the market capitalization of Scott’s Liquid Gold, and you can figure out what its market capitalization is going to be when the deal closes and you can draw some conclusions, I think, but you’ll have to draw those conclusions on your own. So I think that’s a thorough answer. I hope it’s a thorough answer. So maybe we can proceed to the next question, Therese.

Therese Byars: Okay. The next question, I think, has to do with the balance sheet as well. Some of the commentary on the issue of noncontrolling interest confuses me and seems a bit contradictory. Perhaps Murray could comment on his thoughts as to how best to value the company, particularly with respect to the NAV of about $4 per share without noncontrolling and about $8, including noncontrolling.

Murray Stahl: Well, I’m not 100% sure I understand the question. So we take the shareholders’ equity and divide by number of shares, that’s your book value. And the way I would look at it, I mentioned in the prior question, a number of things are not valued market. So the real question is are they worth more than the stated balance sheet value? So is the – are the buildings real estate worth more than their value? I think they are, but is MIAX worth more than its cost base is? I think it is. Is Horizon worth more than it stayed here? I think it is. Is revenue share more worth more than it stayed here? I think it is and so on and so forth. Consensus Mining, we’re going to figure out what happens. So all I can tell you is that’s the differential.

And I can’t tell you what exactly the value should be because everybody has to make up their own mind on that. All I can tell you is judging from the market price relative to the book value. Obviously, people think it’s worth more, not less than the carrying values. And that’s not an unreasonable position to take.

Therese Byars: I wonder if part of the question is about the noncontrolling and the share – book value attributable to the company might be why is there such a large noncontrolling interest that wasn’t in the question, but it might be implied, if you want to speak on that.

Murray Stahl: Why don’t you explain what you mean by that because I’m not sure what the question is so [indiscernible] question.

Therese Byars: Okay. So I think on the balance sheet, we have stockholder’s equity attributable to the company. and then noncontrolling interest. So that may be confusing and I may be interpreting this wrong, but just what the difference is? What’s the noncontrolling?

Murray Stahl: Okay. What difference is, okay. What is the noncontrolling interest? Okay. That’s a good question. Now we control two LLCs they’re known as HK Hard Assets I, HK Hard Assets II. You can see in the footnotes how much we control of each. So the differential, which I think in the case of HK Hard Assets I, is something like 78% doesn’t belong to FRMO. It’s other people, of which, apart from FRMO, the largest holder, let’s say, the HK Hard Assets I, is yours truly. So I own a lot of it personally. So that’s the difference. So FRMO doesn’t – we obviously – we’re just partners in that. So you might say it’s a fund. The market value of that fund is probably $160-something million. It’s growing usually every month. Why is it growing every month because the various partners myself included contributing more securities to it, constantly and hopefully, the market value is going to grow as well.

So basically, that’s what the noncontrolling interest happens to be. It’s basically these two funds, the market value of HK Hard Assets I, it’s a lot bigger than the market value of HK Hard Assets II. For the simple reason that HK Hard Assets I, we’ve been at it for about seven or eight years, something like that. And HK Hard Assets II, we’ve been at it at, I don’t know, 1.5 years, does it sound right, something like that. So it’s going to take a while to build up HK Hard Assets II, the way we build up HK Hard Assets I. That’s a noncontrolling interest. Now maybe the question is, what if you merge a noncontrolling interest into FRMO, would it make a difference? No, it wouldn’t make a difference at all because you still have the same book value.

We take those assets, and presumably, we take shares in it to be more shares outstanding. FRMO have bigger market capitalization. But HK Hard Assets I owns the same thing as FRMO owns, maybe the weightings are in the rounding errors might be slightly different, I don’t know, but maybe the rounding error is slightly different, but they’re not materially different. So we just own more of the same stuff. So I don’t think that affects the valuation whatsoever. But as I said, reasonable minds may differ.

Therese Byars: The next question, I am a retail shareholder of FRMO Corp, in regard to the latest financial report, can you tell in which bucket under assets in the balance sheet are the crypto digital currency assets reported. I think it’s crypto/digital currency reported. I did not find them directly mentioned, hence the question. And then there is a second part of the question, but I’ll let you answer the first. No, wait, it’s related, I’m sorry, Murray. And in regard to the holdings of Winland and Consensus Mining, are they under investments in limited partnerships and other equity investments at fair value?

Murray Stahl: Yes. So all that stuff is in investments, limited partnerships and other equity investments, they all lump it in there. It’s all in there, public, private tool in there. For the most part, it’s all there. And digital mining assets are the digital mining assets. There the machines and the real estate. The reason the real estate is under digital mining assets because it’s just real estate because the property is used for mining. And that’s why it counts as digital mining assets.

Therese Byars: In the next – in the first quarter 2024 conference call, Murray Stahl stated Bitcoin Cash was the most undervalued asset with the most upside on the balance sheet. With regard to FRMO accumulation of Bitcoin Cash, is it more cost-effective to purchase the coin versus mine them? In addition, what is the ideal amount of Bitcoin Cash on the balance sheet in relation to bitcoin?

Murray Stahl: Okay. With the second part, I don’t know what the ideal amount is. I’ve never really thought about it that way. So I don’t know if I can answer it. I still stand behind the idea that it’s really undervalued because it’s got the same monetary policy. It just doesn’t have a use case. And by the way, bitcoin itself doesn’t really have a use case, it has ETFs, but doesn’t really have a use case. So one of the issues between bitcoin and Bitcoin Cash, it really hasn’t been an issue yet, but it might be one day, only material difference between bitcoin and Bitcoin Cash is, Bitcoin Cash has a bigger block size. Ordinarily, that wouldn’t be an issue. Nobody who mine bitcoin really care that much about the block size. And a lot of people were against making a bigger block size.

That’s why at the time when Bitcoin Cash is about seven years ago, Bitcoin Cash forked and got existence amongst people, including ourselves, we’re not really enamored of Bitcoin Cash. And the reason was we don’t want a bigger block size. We don’t want a bigger block size. The theory was that if you made the block size too big, some big multinational company would come in and do one transaction of another high-speed transactions, and we ride back to centralization. So the block size in bitcoin is by design. Everyone likes it that way. It’s small, really can’t put a lot of the stuff in. Now enter ETFs. Of course, years ago, people talked about ETFs, we just couldn’t visualize, one day, we have an ETF. Now we got an ETF. So why is that relevant?

Well, if you’re creating units of an ETF, the unit is usually 25,000 shares. So some ETFs, it will be 50,000 shares. So the difference between ETF and a mutual fund is you can only add money to an ETF in certain increments of shares. So in other words, you can’t add $2,500 to an ETF. If you want to add money, you can buy 2,500 shares, you can buy $2,500 worth in the open market, but you can’t deposit $2,500. You have to deposit it in set share amounts, which knows units, the standard unit is 25,000 shares. However, there are other ETFs that have 50,000 shares, and I’ve yet what the unit amounts are and all the ETFs SEC approved the other day, you could look it up. So anyway, if you’re creating units and you have to instantiate your ETF and one must instantaneously by bitcoin, one would think that you want to post that transaction to a block and have it on the blockchain.

Just for accounting purposes. So now if the block isn’t big enough to accommodate that because there are many smaller transactions that preceded. It’s a solution within the context of bitcoin, and that solution is to pay a transaction fee. So bitcoin mining when it happens, gets a little more profitable than otherwise would be because people want priority for their particular transaction, whoever it may be, in terms of posting the blockchain, voluntarily pay a transaction fee. You don’t have to pay a transaction fee you if you don’t want to, voluntarily pay a transaction fee and that transaction fee gives you priority in posting it. So one would think that miners to the degree they wish to earn the transaction fees over and above the block fees might then find a use case for a bigger block size, which is the Bitcoin Cash currency as opposed to bitcoin currency, the same thing.

Or put another way, what if, for whatever reason, there’s no plan to do this, by the way. What if, for whatever reason, someone decided to make a Bitcoin Cash ETF. Would that attract more mining activity? And if you attracted more mining activity, the hash rate will bigger and the market value would be bigger by virtue of what we know as network effect or Metcalfe’s law. So there’s a lot of upside there. So the same equipment that you mined bitcoin with, you mine Bitcoin Cash. So to change your equipment from mining bitcoin and Bitcoin Cash, it’s a switch. It takes at most 30 seconds, if it even takes 30 seconds to switch one way, and another 30 seconds to switch the other way. Generally speaking, the profitability measured in the fiat realm is basically identical.

So what we’ve done over time, in our mining and Consensus Mining, mining to the extent we do mining in FRMO, we’ve devoted some machines to mining Bitcoin Cash. Now because there are many, many fewer people that are mining Bitcoin Cash, many, many or few people. Now the price of Bitcoin Cash is much lower than the price of bitcoin, but there are many fewer people, mining it. So number of coins that you’re getting per block of your minor is much greater. So if we had a handful of the machines set to mine Bitcoin Cash relative to machines that we have set to mine bitcoin, we’re going to accumulate Bitcoin Cash faster than we accumulate bitcoin. So come a point in time when we will have, let’s say, Consensus Mining as many, if not more, Bitcoin Cash as we have bitcoins.

And then it gets kind of interesting because if the theory is valid. And by the way, I should tell you, I’m the only person who even believes it. So I’m more or less minority of one. If you ask anybody else in the crypto realm, they are not a believer investment thesis. So I’m basically by myself. But I think it’s going to have a use case one day. And it may be a very different use case than bitcoin. Matter of fact, I believe there are a lot of different cryptocurrency that’s going to have use cases. It’s just hard to imagine what they might be right now, but it’s going to happen. We could speculate, but I’m not going to do it because of just speculation, but I can dream up lots of use cases. I’ve written about some over the years, but they are only ideas.

There could be a lot of possible use cases. So I think it’s important to maintain Bitcoin Cash. Doesn’t involve a lot of expense. A matter of fact, we already paid for the machines. We can always switch back. So we’re going to continue doing that. Litecoin, same thing. I know you didn’t ask, but Litecoin, the same thing. And maybe in the bolus time, we’ll actually do some other coins as well. Over the years, we have mined some Ethereum, Ethereum is not mined anymore. Now it’s a proof of stake system. We mined some Ethereum classic over the years, we still have it. So there’s a lot of interesting things to be done. So I guess I hope that’s enough on that question.

Therese Byars: I suspect you will comment on the 11 new U.S. bitcoin spot ETF, given the expense differential will he transition out of GBTC and if so, into which of them?

Murray Stahl: Well, I wish I could – let’s boost but let me – I’d be very careful to have me answer the question because I can’t give you the kind of information that you’re seeking. All I can say is I am well aware of what the differential is, and there are a lot of options doing things. The only restraining factor is taxes. So we like it possible not to pay them. So in preparation, if we were to do something, which I’m not verifying, we’re doing or not doing. But if we were to do something, we would very like to much like do it on a tax-free basis. And even though we have verbal opinions. We’re not going to do anything unless we get a written opinion for an order. So we don’t have a written opinion yet, although we have a verbal opinion. So we’ll have to evaluate once we – if we get – to once we get a written opinion that we can do something on a tax-free basis, I will be able to give you a much more lengthy and detailed answer to your questions.

Therese Byars: What and how – or how many coins were mined in the recent quarter? What – another were sold, Litecoin?

Murray Stahl: I don’t have that at my fingertips. I will just tell you that we hold many more coins than we sell. So basically, in Consensus Mining, we basically haven’t been selling any coins. So why haven’t we been selling coins, it’s a generalization, because we raised a lot of capital in our private offering and we never spent the money and interest rates are now 5%. So interest income is such, when I’m using income, we basically use the interest income to pay the electric bill. So I don’t think we sell very many coins at all. In Winland, we don’t have such big cash balances. So we do sell coins, but we – I don’t have the figures in front of me, but basically net, we grow our coins every quarter. We’re not selling more coins than we mine.

The goal is to mine more coins that we sell. And every quarter, we want to grow our number of coins. It’s really, really important to grow our number of coins every quarter. And I don’t think we’ve ever gone down sequentially in the quarter in terms of number of coins in contradistinction, with a lot of other companies do. I think we’re always growing our coins and I pay very close attention to that. I wish I had the figures in front of me, but those are other publicly traded corporations and they’ll have to speak for themselves, but it’s very important that we keep increasing the number of coins we have. And if I can do it, we’re going to keep increasing the number of coins.

Therese Byars: We do list the crypto holdings on the FRMO website under Quarterly Conference Calls. So…

Murray Stahl: Yes. And people can see that we grow the coin, if you look at that, you can see we’ve grown the coins. We’re not selling coins. So you can compare linearly sequentially quarter-by-quarter. You can see what’s happening. So I’m going to look it up now just for the heck of it. And we held directly, I’m going to round 152 bitcoin, this is November 30, and we held indirectly another 24, I’m rounding down, not up. Then let’s see if I can get something, see if I can, I’ll do the quarter before. Let’s see if I can give you a number. Yes. So held directly, we had – I’m rounding down, I mean, excuse me, not 24, 149. So we increased and held indirectly 24, I round down this. I think it went up anyway when you round. So if I can look it up, No, it’s the same, 24.17.

So indirectly, we got the same. Directly, we’ve increased by 152, 49, call it, three coins in the quarter. It doesn’t look accurate to me for the simple reason that I know Consensus increased number of coins, it should have went up. So it doesn’t look accurate to me. But anyway, maybe you can check, I think…

Therese Byars: It’s as of November 30. So since then…

Murray Stahl: Well, I know, but August 31, November 30 that Consensus increased number of bitcoin. So it’s definitely bigger. So you might want to actually, beg your pardon, we did increase. It’s very small, but we have a small holding. So as of November 30, the number is, this is indirectly, it’s Consensus in Winland, 24.26, and held indirectly on August 31, 24.17, so did increase. As I said, we don’t own a lot of Consensus yet, in Winland we own a lot of it, but it’s a very small company. They only had 65 coins. So we didn’t mine that many coins for the quarter. So we didn’t grow by that much.

Therese Byars: Without revealing anything that might reduce Horizon Kinetics or FRMO’s competitiveness, would management give a bit more information about FRMO’s and associated subsidiaries, mining rig procurement process. I’m mainly asking this because the fact that FRMO is apparently being required to pay in bitcoin for this equipment by manufacturers as told in the previous shareholder meeting it is a bit surprising to me. For example, BITMAIN, one of the largest bitcoin mining rig manufacturers, those payment options on their website, including USD wire transfer and their payment terms on their support page do not refer to any such policy of only accepting bitcoin.

Murray Stahl: Okay. Well, to begin with, last couple of purchases, we did not pay in bitcoin. We paid in USD. And we didn’t buy from BITMAIN. We didn’t buy the equipment in BITMAIN. We bought the equipment from wholesalers. So why did we buy the equipment wholesalers? So a lot of the miners, the publicly traded ones, board equipment. And unfortunately, they can’t pay for it. So it’s sitting in a warehouse. So the tariff was already paid on. So some wholesalers somewhere, or some number of wholesalers own this equipment, the intended recipient cannot pay or does not intend to pay or does not wish to pay or whatever. So we’ve done that. We’ve done that in USD. So sometimes, we’ll put an order in with the wholesaler. And we combine our order with that of other companies to make a really big order, and that order really does go to BITMAIN, but the idea is to make it a really big order that all the participants in the agglomeration of the order can get the discount for volume.

But then we’re buying – we’re paying the wholesaler. We’re not paying BITMAIN, so wholesaler responsible for delivering the equipment to us. Some of the confusion might be, one of the things that I wanted to say, one day we’ll have a graph to show this. What I’d like to do, I wish we had a graph for this, maybe next time we can have a graph to show this. So what I’d like to do is show how much money it cost in bitcoin to buy the state-of-the-art machine? So put it this way, when we started mining, let’s say, seven or eight years ago, we wanted to buy the then state-of-the-art machine, which was the S9. If memory serves, we had to, you won’t be paid in dollars. But if we translate those then dollars in the bitcoin, we had to spend roughly nine bitcoin, even though we might have paid in dollars.

We had to spend roughly nine bitcoin to buy the then state-of-the-art, the S9. I think it was something like a 10 or 11 terahash machine. Today, what we want to buy is the S21 coin – the S21 machine, which is 200 tera hash machine. So it’s got processing power probably 20x what the S9 had, and one bitcoin can buy 10.75 of those machines. On the right day, maybe of 11 machines. So what’s happening is the number of machines that you can buy priced in bitcoin is ever rising. So it’s probably my fault. I probably want to say that at some meetings and I didn’t express myself with the precision that I’m doing right now. And maybe it’s totally my fault. People took it as, we’re spending bitcoin to buy machines, but in the past, we’ve done that. We’ve actually – it has happened.

We’ve used bitcoin to buy machines. But recently, we’re using dollars. But what I want to say is whether we’re using dollars or using bitcoin, I really was trying to, in a very articulate way to express the increased purchasing power of coins in relation to machines. And that’s a really important concept because one day, when we have a lot of coins, we’ll be able to grow our processing power if we had to by just using bitcoin from the treasury if we needed to. I don’t expect that to ever happen, but we would have the option of that happening. So I guess what I was trying to express, the idea that sometimes they say to people, you’re not in the fiat world, you’re in the bitcoin world, which is true. So maybe I was trying to express it is if we’re going to do the – we can’t do the accounting of bitcoin because it’s not proper, but mentally, we really should.

So because what’s actually happening, when people look at a quarter bitcoin and they’ll say bitcoin is up or down, whatever it was for a day, but they really shouldn’t say that. What they really should say is the U.S. dollar was down in relation to bitcoin. That’s actually what’s happening. Bitcoin’s not changing in price, U.S. dollars is changing in price. U.S. dollar is losing its purchasing power relative to bitcoin, and you can see it if you had a graph of the machines expressed in bitcoin. And if everybody thought of it that way, people would say, well, my dollar is losing value. I don’t want to have any dollars. I want to have bitcoin, people look at that way. But they look at bitcoin as if it were a stock, there’s not a stock. It may be quoted as if you were a stock, but it’s not a stock.

It’s just an alternative store value, and it’s gaining purchasing power in relation to dollar which is the same thing you’re seeing dollars losing tremendous purchasing power relative to bitcoin. And that’s why we’re involved. It’s a sociological revolution standpoint of view. So I hope I’ve expressed myself more carefully this time. So I made my meaning more clear.

Therese Byars: Moving on to questions about the Horizon Kinetics and Scott’s Liquid Gold merger. As far as you or anyone knows, does Scott’s Liquid Gold, the Scott’s Liquid Gold announcement have any impact on FRMO?

Murray Stahl: Yes, it does because it will happen when this deal closes, I believe, don’t quote me on this. This is my personal belief, so I’m not world’s expert on Generally Accepted Accounting Principles. I believe under Generally Accepted Accounting Principles, we’re going to have to use the market value of Horizon because we’re going to change the name of Scott’s Liquid Gold to Horizon Kinetics, we have used the market value, whatever that happens to be. And if the market value is higher, then the $15-odd million we have it on the books for, we’re going to have to use the value. I believe it can be required to do that. Time will tell if we really are not being required. So you’re going to see it, it’s going to have an impact and maybe not small on shareholders’ equity. So I would pay attention to that.

Therese Byars: I think you answered these next two questions, which were also about the merger. This shareholder says, I own 11,000 shares of FRMO and my questions for management are what relative details can you share with FRMO shareholders about the decision to bring Horizon Kinetics public through a reverse merger. Why and why not? So FRMO shareholders anticipate any material changes impacting the value of FRMO shares in connection with and subsequent to the merger. If yes, please elaborate. I believe you just did, but if there’s anything you want to add?

Murray Stahl: Yes. I’ll just reiterate that if the value is what the – if you calculate what the value is today and you – there’s a way to do it. If you were to calculate it, my personal view is, I think we’d have to change the balance sheet value of Horizon Kinetics considerably. And maybe, I don’t know for a fact, but maybe that might provoke a discussion of the value of the revenue share, and we may have to change that as well. So there is that part of it. Why did we decide to do it? Well, there’s two kinds of shareholders of Horizon Kinetics. They’re the ones that are active in the business, of which you’re talking to one of them right now. So I’m not going anywhere. I’m not selling any shares. As far as I know I’m in good health.

I like what I’m doing. I’m going to keep doing it. So everything is fine. I’m not looking for liquidity. I don’t need liquidity, thank goodness, but there are people who own shares that are not active. They were just investors at the beginning and they got to a certain age and they may have some need of liquidity. So it’s not there to keep them locked up. So there are two options. Option number 1 is we could have bought their shares, in which case we had negotiated price. And from their point of view, it’s really not fair, we’re the insiders, were giving them a price, which from their point of view may or may not be fair. You can see that might be problematic. It might even be a conflict of interest if we even were to quote a price. So the other possibility is create a market, the market will determine the price.

So they want to sell, they want to sell, they don’t want to sell. They don’t want to sell, maybe they want to buy more, whatever it is, and we’re going to see what happens. I will tell you – I’ll reiterate there is a dividend policy in Horizon Kinetics, and we’re not going to change our dividend policy. So the Scott’s Liquid Gold share is to become Horizon Kinetics shares, you’re getting a dividend, whatever it’s going to be. So that’s a big difference from FRMO, and as a publicly traded vehicle and people can decide whether they like it, whether they don’t like it, et cetera, et cetera, et cetera. So it was liquidity needs of people who are not active in the business. That’s probably the best way of saying it. They get to a certain age and I think it’s only reasonable to provide liquidity options.

Therese Byars: The next part of the next question is a housekeeping question, which was asking about the annual meeting transcript. It has been posted since January 5 of this year. And if you don’t see it, please refresh your web page, the screen refresh it, and you should be able to see it. Now the rest of that question. Also, FRMO is clearly an amalgamation of various investment funds, investments, funds, fee streams. And I was wondering if you have ever considered providing some more detail that would allow investors to view the company as a – some of the parts wins, particularly given Horizon will have a value mark in the public market in the not-too-distant future. I’ve seen several public alternatives managers go through this exercise. And the shareholder refers to the Brookfield 2023 investor deck – Investor Day deck. So that’s the question basically.

Murray Stahl: Okay. Well, it’s going to happen. So when they’re these are financial/accounting/legal staff. They’re probably busily drawing up the documents as we speak, and we’re going to file an S-1 registration. There’s going to be a lot of information that thing, and quarterly, we’re going to give detail on the revenue streams and all that. So it’s all coming. There’s not a lot to hide, frankly.

Therese Byars: Next question. In the interim consolidated financial statement. On Page 7, it lists different number of shares owned in Winland compared to Page 8. What is the reason?

Murray Stahl: I think, don’t quote me on this, but you probably should ask the orders. I think the reason is the convention is, and on one page, they state the number of shares that they owned at a date in time, how many do we own at FRMO in that date in time. And the other, they state the weighted average number of shares is they were owned during the quarter. I believe that’s the accounting convention. So in round numbers, like right now, as of this second, I don’t know the exact number, but I would say we own, in round numbers, something like $1.6 million. That’s as close as I can get without sitting down, adding it up. We have a 10b-5 program open for Winland and we’re in the market every day buying shares.

Therese Byars: Another part of that question is, it was announced on December 26, 2023, that Horizon Kinetics is merging with Scott’s Liquid Gold. Was there any consideration given to merging with FRMO? And what was the reason for selecting Scott’s Liquid Gold as the public trading vehicle?

Murray Stahl: Okay. Was there any consideration given to merge with FRMO? Not really. So the next question would be, why? Well, look at it at a point of view of the nonactive shareholders. So FRMO, even though it has interest in Horizon Kinetics, it’s got all kinds of things, a lot of its securities. And from the interest of other shareholders, there might have been dilution. As a matter of fact, there would have been dilution, and it might not have been great because people could argue. It’s just a security, it’s an ongoing business. So an ongoing business trades at a multiple, the security is just worth its net asset value. So it might have been from a point of view of somebody looking for liquidity, it might not have been from some’s point of view, the best possible outcome.

So we really didn’t look it that way. Another reason is, FRMO is going in a not radically different direction but somewhat different direction. So FRMO is, if you look quarter-by-quarter how much we own Winland, Winland is an operating company. It’s mining crypto. It keeps increasing. We’re increasing the size of Winland. So FRMO, if we kept doing what we’re doing, we made an operating company, not an investment management company, so then somebody could say, if you’re taking an operating company managing crypto, not managing crypto, mining crypto and you’re integrating that with an investment management company, is that going to help the multiple? Is that going to hurt the multiple, and reasonable minds may differ in that. So rather than just make an experiment, we left it alone.

We didn’t go in that direction. We’re going to continue expanding the crypto mining business in a gradual but deliberate manner which is, , I think you’ll see is different than what Horizon Kinetics is doing with the asset management business. Did I answer that?

Therese Byars: Yes. I think you did. What are the ballpark odds that all of the related companies such as at FRMO, Winland, Consensus, Scott’s Liquid Gold, and HM Tech, et cetera, will be combined someday into one New York Stock Exchange and NASDAQ traded stock?

Murray Stahl: Okay. So just to list the entities, if somebody were to urge us to do it. And if we said, yes, the entities would be FRMO, Horizon Kinetics, Horizon Common, HM Technology, otherwise known as HashMaster, Consensus Mining, Winland, seems like I’m missing something. I don’t know what it is. It seems like I’m missing something, but you get the idea. It would have a very big market capitalization just on a net asset value basis, but is that the highest and best use of everything because there’s going to be a lot of cash and marketable securities. So would it be valued like a holding company’s value would we get an operating multiple lot, and that’s a critical question. Is it better to have the different parts growing their unique businesses and getting a multiple on earnings.

Is that the best use or the best ultimate value realization for shareholders? Or is it just throwing it into one pot and having all this cash and marketable securities there? And maybe taking a chance where we can get the holding company discount. In any event, whatever the answer to that question is, it’s going to be harder to grow the cryptocurrency business in the context of something that’s enormous like that. So we have to make a much more radical effort to give it prominence. And we don’t want to make a radical effort for the reasons I mentioned earlier because you have to go in a steady and deliberate pace because there’s always the danger every quarter that your equipment is going to be obsolete. So you can’t commit a lot of money to equipment in any given quarter because you really don’t know what’s happened.

Or put it another way, that’s not been the philosophy, all the other companies have done the same thing. So I leave it to you to see how that policy has worked out. And I don’t think it’s worked out in the interest of shareholders. Just my personal opinion, not trying to cast any aspersions on anyone. It’s just that the pace of technological change is very rapid. We have to be very mindful of it. So we don’t want to be in a position where we’re going to force things in ways we ought not or would not otherwise do. So I hope that explains the logic.

Therese Byars: The next question has a rather long follow-on kind of explanation for why he’s asking. Could management give a bit more detail on what would entice them to make dividend distributions to FRMO shareholders. On the point regarding Mr. Bregman’s comments on stock dividends for investors to create a home-made custom dividend yield opposed to cash dividends from the company, and also relating to the gentleman’s question on FRMO’s valuation near the end of the previous meeting. I’d like to say that, one, I would like to retain as much relative percent interest as possible in the business of FRMO itself for as long as possible. And two, I would like to any gains received from any ownership of the business to be based on the economics of the underlying business rather than the vagaries of Mr. Market and whatever the market price and liquidity happens to be on offer in the market at any given time.

As the gentleman in the previous meeting knows, the valuation of FRMO by Mr. Market does not always make perfect sense. I’d like to repeat the Warren Buffett quote, “I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years”. From this perspective, I completely understand management’s continued apparent and deep prioritizing of uplifting FRMO. It has nothing to do with the fundamental operations of the business. With a cash dividend, the economics of the business or underlying owned businesses of FRMO can speak for themselves and could in a way, reduce or eliminate the need for any kind of uplifting, rerating or other form of greater recognition from marginal buyers in order to reward existing shareholders.

In this case, rewarding existing shareholders for inching toward becoming ex shareholders. This would also allow existing shareholders who are not directors to continue opportunistically accumulating shares without having to compete with any newer sector of Mr. Market than any road show may gain the attention of them. So the question was at the beginning. So could you give a bit more detail on what would entice management to make dividend distributions to FRMO shareholders?

Murray Stahl: Okay. So the moment I agree with all, by the way, I agree with all the sentiments in the question. So I’m completely in agreement with all that stuff. So we don’t have any plans at FRMO to pay a dividend. I don’t know, uplifting as far as that goes, we’ve just been so busy we just really haven’t had the time. We have been doing a lot of stuff. We have – frankly, we haven’t had a lot of time to even think about. We’re mainly doing in FRMO is we’re building the cryptocurrency business. So towards that end, to the extent we can generate cash, a lot of that is going to be deployed in growing the crypto business. So I think we get a lot more value for shareholders in reinvesting in the crypto business in a gradual sort of way than we’d get if we paid a dividend.

So we’re just going to continue what we’re doing at more or less same pace and we’re going to see what happens. So far, it’s the crypto we have is getting to be pretty considerable. And we keep buying crypto-related assets. So eventually, it’s all going to coalesce and something you’re going to see regular operating earnings from. When the cryptocurrency business is something that’s really much better understood by the public. Right now, I don’t think it’s very well understood by the public. Eventually, people will get it. In the meantime, we’re just going to keep growing it. So I hope that answers the question. We’re not going to do things on the fringes. We’re just going to more or less maintain our policy.

Therese Byars: Yes. Horizon Kinetics recently posted third quarter commentary with a large section of the publications dedicated to the merit of crypto exchanges and their exposure to the derivatives market. How does management reconcile this with their thesis that the whole past 40 years of market dynamics has been an aberration based in large part on rates falling to zero. In the commentary’s own graphics, derivatives growth only seems to start growing after the historically low rates that came after the 2000.com bubble. What might a higher for longer risk-free rate due to various trading costs, behaviors and capital allocation decisions that could negatively affect exchanges?

Murray Stahl: Okay. So let me just take it in parts. The last 40 years, more or less the aberration, let me explain what the aberration was historically. So in the ’80s, we started with some inflation, and we started with high interest rates. And then the miracles happened. First miracle was, the Soviet Union began to collapse towards the end of decade, it collapsed. The significance to that was, Soviet Union didn’t have a lot in the way of technology, but it’s a literal treasure chest. Every conceivable natural resource you can imagine. And just about everything came on the global market, every commodity you can possibly think of. So we had a miracle disinflation, which had not collapsed, wouldn’t have happened. Miracle number 1.

Miracle number 2, the People’s Republic of China. Now People’s Republic of China didn’t have much in the way in natural resources. So they couldn’t rival the Soviet Union. What they did have is, and they do have 1.4 billion, would it be people. And they have a lot of commodities to put in the global market, they put 1.4 billion people on the global market, now is the global labor arbitrage. So all sorts of companies maybe almost every company in the S&P 500 that move production to China. Not just move production in China as big. I don’t want to understate that at all. Not just move production in China and thereby, got higher profit margins. Margins that were unimaginable not the many years previously. But also don’t forget the next miracle, which involves the People’s Republic of China, but also involves other people.

The previously denied areas to American business. So the iron curtain, Poland, Romania, Soviet Union, China, Mongolia, et cetera, they were denied areas, all of a sudden, they’re opened. So all the – third miracle, all these geographies that were previously closed we’re now opened. And there are a lot of other countries, while they weren’t really properly speaking, iron country nations, they were quasi socialist nations like many in South America that also opened up their markets. So I’m going to put that under the third miracle. Three huge miracles for 40 years, more or less. That’s the story of the market, for 40 years. Now we’ll come to the croupiers in a minute. Those are the three miracles. So those three miracles together, once a millennia aberration.

Now let’s add a fourth, I wouldn’t call it a miracle, but I would call it an aberration. So sometime around late ’90s, there were a handful of people on the Internet globally. And by 2023, there were 5.4 billion, maybe 5.5 billion people in the Internet. So you went from a handful to 5.5 billion, and that creates business opportunities for the likes of Apple, and Amazon and Facebook and Google and Microsoft and I can keep going, but you get the idea. So now we’re four miracles. So now you can’t take almost nobody on the Internet, and a quarter century later, take 5.5 billion people in the Internet and say that’s going to continue because there’s only 8 billion people in the world. it can’t continue. It has to be an aberration. There’s only Soviet Union.

It collapsed. Dumped their commodities in the marketplace, now they cannot do that anymore. China offered 1.4 billion people. By the way, it’s not just China, it’s India, it’s Malaysia, it’s Thailand, it’s Vietnam, it’s the Philippines. I don’t think it’s an exaggeration to say the 3 billion people actually enter the global labor market. But it’s a once in a millennium event, those are aberrations. Now China, to take one country, its companies are rising to challenge the American companies. So forget about interest rates. The movie is starting to run in reverse. So China, I don’t know if they are successful or not, China has something called the Kirin 9000 chip. And they have Huawei, one of their private companies make a phone that, it looks to me, and I’m not an expert, looks to me, it’s very competitive with Apple.

And a week or two ago, they created a phone known as the P70, the upgrade of the Mate 60. So it looks like it’s even more competitive with Apple. And 1/3 of Apple’s business is in China. Now the Chinese company, Huawei, has an allocation. What does that mean? They can’t even satisfy the demand. They keep cutting the prices and keep adding features to it. Apple just cannot respond. And the entire – so you can’t expect China to be, which it was for some number of decades, low-cost manufacturing hub, low-margin hub of the planet forever. You have to anticipate that they’re going to move into higher-margin businesses and higher-margin businesses are going to be in direct competition to all the major companies of S&P 500. Now, how do you find the quantitative expression of that?

Well, all you need to do is look at the MSCI equity index. These are round numbers, but I think they’ll do. You can look them up and get the exact numbers. In that index, I think the weighting of American stocks is something like 63%, something like that. The weighting of Chinese stocks is something like 2.7%. There’s not that much different distance between the Chinese economy and the American economy. On a purchasing power parity basis, which some would argue is the correct way to measure economies, Chinese economy is bigger than the American economy. So now the aberrations are in all the other way. That’s going to correct. In my mind, there’s no doubt about that whatsoever. So if people keep behaving as of the last 40 years, we’re not an aberration, which is essentially what everybody is saying is the case.

What does that mean? That means that all these great technology companies are going to keep growing, even though they more or less wired the world for the Internet. Does that mean that the Russians are going to keep dumping commodities in the marketplace? They’re not going to keep dumping commodities in the marketplace. Those commodities are going to go to China. And whatever the problem was sustaining Chinese growth and again, the kind of value they need to really grow. China is moving into higher-margin businesses. There’s no question about whatsoever. None. As one example, just one, the Chinese company, BYD, makes electric cars, is now making more electric cars in Tesla. So China Aviation, they only made one plane, but they made a plane, an airliner, from the look of at it, it looks competitive with Boeing and Airbus.

And why would we not expect China to do that? So now as the Chinese companies – if the Chinese companies as I assert they will, if they move into the high-end margin businesses from low-end margin businesses, which they occupy themselves for the last 30 or 40 years, then everyone’s going to say, the last three, four years was an aberration. And it’s going to wreak havoc in the marketplace. That’s the danger. So now enter crypto currency. The answer from the Western countries is not to have more engineers, invest more money in technology, et cetera. The answer, unfortunately is, spend more money and maintain a secure living, and that means borrowing and it’s just unsustainable. So money is being debased. Cryptocurrency is the answer to debasement.

It’s the answer to centralization. And it has the prospect of becoming the biggest asset class the world ever was, why? Because stocks themselves are an aberration. For most of history, the big markets were gold and money claims like letters of credit. Stock is a relatively new thing. If you were to look at – you get a Wall Street Journal, just go to a library and get a Wall Street Journal from 1923. I’m not saying get a paper from ancient times. I’m saying get a newspaper from 1923, and see, in the New York Stock Exchange, how many stocks are preferred stocks and how much – how many stocks were common stocks. You will see people are not interested in common stocks, they’re interested in preferred stocks because they’re interested in income bearing securities.

And that’s what’s going to happen in cryptocurrency. So cryptocurrency, the next evolution in cryptocurrency is going to become interest-bearing. So how is it going to become interest-bearing? Because there, I think there are roughly 689 different exchanges, they’re really brokers than exchanges, in cryptocurrency and there are massive differentials and how they trade. So market is developing for what’s called a flash loan. What’s a flash loan? You borrow, let’s say, a bitcoin for 10 minutes, literally 10 minutes. The idea is to sell that bitcoin in the market that bitcoin is most expensive of the 689 exchanges, and buy it back in the least expensive market, thereby reaping a benefit and paying it back before the bitcoin block actually gets written to the blockchain.

Now you only get a handful of basis points, maybe 9 basis points for a loan. But you can see if you got 9 basis points every 10 minutes, how many 10-minute intervals are there in a day, you can see how lucrative that is. And what that means is that the market rate of bitcoin in the flash loan market is likely to be much greater in the market rate of fiat that’s set by a central bank and then things really get interesting. And that explains why so many people want to make crypto ETF to collect crypto, to be able to lend it out in the flash loan market. That’s really the name of the game. It’s not to raise $10 billion and get 21 basis points. So we’re living in aberrational times. And you might regard crypto as an aberration, but that’s not the aberration.

What happened over 40 years, that’s the aberration. Crypto is to return to normalcy. From a bulk of history, there wasn’t a central bank that told people what rate to lend money at. We really think it’s normalcy because within our own lifetime, that’s the way the world worked. For thousands of years recorded history in most cultures all around the world, people figure out what the value of money was, they didn’t need the central bank to tell them. So what’s really happening is we’re going back to normalcy. In a world of normalcy, hard assets, not financial assets. true measure of wealth. We’re going back to that. So I hope that’s enough of a lecture. I don’t want to go – I can go on a lot longer, but it just gave you a mini lecture on the subject.

I guess, we’ll call it comments on aberration.

Therese Byars: Okay. What is management – this is a question about succession what is management doing to make themselves more dispensable to the company in as minimal value disturbing way possible with the death of the great Charlie Munger, the Horizon Kinetics reverse merger and the recent court decision on TPL, I think many FRMO shareholders are looking to the future and wondering how management’s excellent leadership and direction will persist in some form beyond the lives of current management and even the lives of existing shareholders who may plan to pass on their FRMO shares to their children in a similar way that Mr. Stahl has mentioned, as being his own intent in the past.

Murray Stahl: Well, I guess, we’re in the process of doing is we’re looking at people who are obviously younger than ourselves, who might take over the reins when unfortunately, we’re either not around or we are around or not able to exercise our functions. That’s what we’re doing. We don’t have anything to announce to you right now, but when we do, we’ll certainly let you know and I get nobody is forever. To a degree, if it makes you feel better, I feel great. I don’t have anything wrong with me, at least not that I know of, and I’m not going anywhere, but you’re right, we’re going to have to plan for succession. We’re in the process of doing that, and we have something tangible announce, we will certainly announce it. And where you have public trade securities, you can attract – it’s easier to attract some people than it is to attracting people to a private company. So that’s what we’re thinking about doing.

Therese Byars: Around 80% of the U.S. national debt is owned by the U.S. public. Is it conceivable that the Fed could raise interest rates to nearly broker-like levels if they wanted to and effectively nullify or greatly reduce the payments, we would have to make for the U.S. public portion of its debt by simply raising taxes on U.S. companies and individuals to compensate for their own interest payments to a large degree.

Murray Stahl: Okay. I don’t believe it’s conceivable. I think that the interest rate problem is considerable. And I think it’s coming to a head. The demand – the interest expense in 36 months or probably less. It’s going to be the biggest debt item. A lot of the bonds are owned by tax institutions, that doesn’t help. If you want to tax people more, they always have the option of voting with their feet and not owning the bonds. So I don’t think that’s going to get you anywhere. I think the interest problem is one of the great problems that is faced by nations periodically when they borrow too much money. Usually, the solution is inflation, is not a very good solution, but usually, that’s where the direction it goes in. I think it’s going to go that way as well.

But today, we have the complexification of cryptocurrency. So I personally think cryptocurrency is going to be a tremendous asset class and people to wouldn’t dream of owning cryptocurrency, they are very safe and secure and the treasury security in the not-too-distant future when they see the interest they can earn on crypto. They’re going to be investing in crypto. My personal belief, we’ll see if I’m right or wrong.

Therese Byars: Is there any effort being made to grow Winland’s electronics and monitoring business, Growth in that segment appears largely unchanged since 2013 and limits the ability of Winland to accumulate bitcoin and mining assets. I recall that Winland was initially bought by FRMO for its excess cash flow and high return on equity. Since the financials do not break out the electronics business assets from the mining assets, for the purposes of funding Winland’s continued bitcoin accumulation. I wonder how the return on assets on the electronics segment compares to say a high-yield savings account that could similarly fund the bitcoin operations by liquidating the electronics business at this point, given the segment’s static growth over all these years, is this not dissimilar from how Consensus Mining and senior edge corporations are currently operates.

Without growing the electronics side of the – just one more part. Without growing the electronics side of the business, what really differentiates Winland from Consensus right now beyond the former being publicly traded.

Murray Stahl: Okay. Well, through – the business of electronics isn’t growing, but then again, to make it grow you have to inject a lot of capital and the return on capital in electronic business is not going to be as good as return on capital in crypto. So we’re not dismantling the electronics business. It’s fine. It’s profitable, just leave it alone and it will do whatever it’s going to do. In terms of the crypto business, FRMO has participated in many equity offerings, in Winland, and we have more enough capital in FRMO to provide for all of Winland’s needs, so big difference between FRMO and Winland and Consensus is, in Winland, we raised money in really small stages and as we need it, and that money has largely come from FRMO.

In Consensus, we actually did a private offering and raised a lot of money. We probably raised more money than we really need at the time. So at the moment, we have, maybe you could argue we have excess capital. I don’t think we have excess capital in Winland. I think we have adequate capital, what we want to do, but we want to grow it. And I think you get a pretty high return on capital. As you can see, so what we have to do is look at what happened to Winland’s stock over the years since FRMO started investing in it. And now it’s a meaningful position and we’re going to hope, we can’t guarantee. We hope to be able to grow it even more, and we’ll see it happens. But you’re right. I mean they’re basically both cryptomining businesses. And at the end of the day, you’re finding the same gradual policy measured purchases of the state-of-the-art equipment.

That’s what we’ve been doing lately.

Therese Byars: What are management’s thoughts on GBTC and other Bitcoin ETF lack of in-kind reduction options and allowing only the SEC’s cash-only creation/redemption policies?

Murray Stahl: Well, I mean, I can’t speak for them. I could see why they don’t want in-kind redemptions. But at the end of the day, when you’re an ETF, people don’t have to leave money in the fund. So there’s a lot of ways to – let’s just say there are a lot of ways to do the equivalent of in-kind redemption if you really want to do it. And I’ll just leave it at that rather than state what the possibility is – there are a lot of possibilities that are open. And the time will tell what people are going to do. So I’m sure you’ll see some interesting things in the next couple of months.

Therese Byars: Last question, without revealing anything that may reduce Horizon or FRMO’s competitiveness, what is the process by which ideas are generated at Horizon Kinetics and FRMO, for example, how does an idea come to the attention of Mr. Stahl and Mr. Bregman, and how is it determined of which, if any, Horizon product to incorporate that idea into, for example, determining to use FRMO versus the Paradigm Fund versus the Rent Fund or some other vehicle to invest in an idea.

Murray Stahl: Okay. Well, any way can generate ideas and rare though it may be even I have an idea from time to time. And the portfolio manager in question is at liberty to incorporate an idea, assuming it falls within the scope of the charter of the fund that the person is managing. So some of the funds are more general and you have a greater liberty of action to those funds and then there’s the corporations. And it’s basically in the corporations like Winland or FRMO or Horizon Kinetics, so for corporate capital, it’s Steve and myself. They’re the allocators. So we make the decisions.

Therese Byars: Okay. Murray, Steve, that was our last question. So do you have any closing remarks?

Murray Stahl: Only to say I enjoyed getting the questions. I enjoyed answering the questions. Is there anything that we didn’t cover or an answer to question if I was a little opaque and maybe I shouldn’t have been opaque or would you didn’t get to cover something that you’re interested in? Please don’t hesitate to contact us, and we’ll get you an answer. And of course, we’re going to reprise this in about 90 days and thanks so much for your support and for a lively discussion. And we’re going to see again real soon. So thanks so much, and I guess, I’ll sign off now.

Therese Byars: Okay. This ends our conference call. You may now disconnect. Thank you for joining us.