Frmo Corp

Good afternoon, everyone. This is Therese Byers 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 Corp. website at www.frmocorp.com. Today's discussion will be led by Murray Stahl, Chairman and Chief Executive Officer, and Stephen Bregman, President and Chief Financial Officer. They will review key points related to the 2023 third quarter earnings. A replay of this call will be available on the FOMO website. until the summary transcript is posted. And now I'll turn the discussion over to Mr. Song.

Okay, thanks, Therese. Thanks, everybody, for joining us today. So what I'm going to do is I'm just going to touch on a couple of key points, and then I'm going to address the questions. You know where I was yesterday. I just got back today. So enough said on that subject. In deference to some requests we had, I normally would read to you how much Bitcoin we have and how much Bitcoin Investment Trust we have, et cetera, et cetera, et cetera. And it's now all on our website, and you can see what the tables look like. It's all there for you, so I won't read it. However, with regard to Bitcoin, I'm going to give a little further explanation about and a highlight that I don't see on this table. So if you look at the table, the one thing that I would have liked to have been on here, but I didn't make it, so I'll give you one further number. You'll, of course, recall that we own roughly 31% of Winland. And Winland is, among other things, a mining company. And Winland loans, in round numbers, 63 bitcoins. The actual number is slightly different by decimal points. So forgive me for giving you the wrong number, but it's roughly 63 Bitcoin. And we own 31% of that. So if you take roughly a third of that, you'd add that in. So I just want to make that little comment. I also want to add that it's worthwhile, now that I made that little comment, I don't really talk about Winland lots. So I'm going to take this occasion and talk about something I normally don't talk about. Now we'll get into crypto. And now I'll go to your questions. So, Winland started out as an electronics company, and it still has that business, basically makes a variety of sensors. It's not a huge business, but it's a fine business. There was no reason to disturb that at all. And we made it a crypto mining business. However, one of the interesting things about the business is that we didn't invest huge amounts of capital in the machines. So it's important to state that the way we look at this is when we buy a machine, it's worthwhile noting we pay for it in Bitcoin. So we're buying mining equipment, we disperse X Bitcoin, and the logic of the disbursement is that the X Bitcoin becomes, in the fullness of time, X plus an increment of Bitcoin. So the idea is the process of mining as a business, the idea is to turn it into more Bitcoin. So you're transforming Bitcoin into more Bitcoin. It's almost like Bitcoin with interest, if you like, except it's not an interest because it's an at-risk investment. There's no guarantee of success. And specifically, it's very close to about three years ago, we did the first of the Winland transactions. You'll recall at that time, So FRMO with Bitcoin, of course, what's the machines? They were then state-of-the-art machines. We then swapped them to Winland in exchange for stock in Winland. That's the primary way we were able to increase our Winland position. Anyway, the number of Bitcoin that Winland has, which is all derived from mining incidentally, um, is available, uh, for you. So if you simply took the current price of Bitcoin and you multiplied by in round number 63, you'd see what that number is. So that number is much greater. If you look back to the, the, the, the original cost basis of the machines. So what do we do now? When I said you're investing X Bitcoin in the enterprise of mining and, um, this is a good time to talk about it because those machines in about three or so weeks are going to be fully depreciate. So when we bought the machines, the idea was the last for about three years. So you can look back and see, you look back at the price of what Bitcoin was that day. You'll see how much we can just look at the, the, the dollar value of a transaction. You can see how much money we invested and the Bitcoin we have. is worth more than that. Now, incidentally, that 63 Bitcoin didn't come entirely from those original machines. We bought some more machines, but that first transaction was an important transaction for us. So we didn't transform the first investment in 63 Bitcoins. We transformed all our investments into 63 Bitcoins. So it's important to note that so it's obvious to everybody. In any event, that's a very profitable endeavor. So that's the way that I believe one should measure a Bitcoin investment. It sort of leads one to a bizarre conclusion when people pose the question in the following manner. What is the cost to mine a Bitcoin? Because the problem is, even if you have a high profit margin, you have to factor in the ultimate obsolescence of the equipment. Now, incidentally and interestingly, even though this equipment, the first equipment, is almost fully depreciated. They were shortly after a second tranche of equipment that's not fully depreciated, but almost fully depreciated. So basically, that fully depreciated equipment, we're still running, and we're still making Bitcoin on it. So what's going to happen in about three weeks, assuming the price of Bitcoin remains where it is or goes higher, the equipment that will have no book value is going to be generating more Bitcoin. That was the logic of the investment, that with our expertise from our other investment, Hashmaster, we're able to maintain the machines, repair the machines we need to repair them. We can get a lot more out of the machines than we put into them. That's the nature of the Bitcoin mining business. Now, it has a further implication. What's the further implication? Well, there's all this talk about Bitcoin and cryptocurrency ETFs. It's all well and good, but it has a problem that Winland is designed to solve. What's the problem? Well, if you had a cryptocurrency ETF as opposed to a customer ETF, the singular distinction is that a customer ETF that owns stocks and bonds, the expenses, whatever they happen to be, are paid for by the interest income or dividend income to securities in the fund. In the case of a Bitcoin ETF, there is no income. So the only way you could manage a cryptocurrency ETF is every time there was expenses, you'd have to sell a certain number of coins. Now let's create an imaginary cryptocurrency ETF. It has X Bitcoin in it. Let's assume, just for ease of computation in this format, this fund is in steady-state mode. What does that mean? That means that no new money is coming in to buy more Bitcoin. No money is going out to pay shareholders for redemptions, and therefore we're not selling any Bitcoins. What would happen, steady state mode is, because there will always be expenses, the number of Bitcoin per share would be declining. You know, compare that to the figures I just gave you in Winland. Number of shares, you know what they are. And we're actually increasing the number of shares when we did this Winland transaction. But the critical variable is the number of Bitcoin And remember, Bitcoin per share, I invite you to do the calculation, is rising. So you have two different paradigms for investment in crypto. One, a simplistic holding model. By its very nature, I would submit to you, would involve reducing, in the fullness of time, the number of, if it were Bitcoin, this example, Bitcoin per share. The other, which we're using within this example, the increased number of Bitcoin per share. And I'd like you to consider which one is better. So a lot of work has been done to make this possible. So it's not just me. There are a lot of people behind the scenes. And I just want to say it's not myself personally. And that's another thing about how FMO is, is, Evolving is a company. There are other businesses that we hope to turn into true operating businesses in one day. And we're doing it in our customary, gradual, risk-averse manner. So we're making some pretty profound changes. We're just making it in very small steps because the entire field of cryptocurrency, it's new for everyone. And every day is a learning day. So I gave you a highlight today. what's going on in FOMO in this case with regard to crypto. All the other investments are in steady-state mode, and you've heard about them perhaps too much in the last several weeks. So I won't go into it unless somebody needs some precise answer to a question. I'll invite Therese to read me the questions, and I'll be more than delighted to answer whatever is on people's minds. So maybe Therese with that. You can read me some questions and I will answer them.

I'd be glad to. Okay. The first one is during the January 17, 2023 call, Murray said or implied that we can see in the financial statements what revenue SRMO receives from its, quote, ownership interest in HK LLC revenue streams, end quote. But I don't see where that information is available. and Murray did not provide a quantification on the call. So would it be possible to provide this information in a time series for the past three to five years, or perhaps you guys figure – or perhaps what you guys figure is the sustainable revenue without performance fees or one-time items? It sounds like whatever – Okay, well – It sounds like whatever revenue is received is a straight flow through, so we can basically capitalize this revenue stream as the value to FRMO. Perhaps a 15 times multiple or a 20 times multiple would be appropriate. That's the end of the question.

Okay. So to begin with, In essence, there's some slight modifications when I'm going to tell you, but if you look at under revenue, fee and other income line, that's almost entirely the HK revenue share income. There are some minor fees that we collect for some other sources. They're really minor if you, they're just rounding errors. We need a real breakdown give you to break down that the breakdown you might want is the performance fee versus not the performance fee. If you just went to all our financial statements and looked at them, you'd be able to tell just for looking at them because the years they go down, that's without performance fees, the years they go up, that's the performance fees. So you'd be able to tell anyway, but if it's possible, you know, if Therese, if you can create a table, um, and break it down between performance fee and, I guess, non-performance fee, I have no problem releasing that information so people find it helpful. Let's get in the data. But basically, with these modest exceptions, they're truly modest, maybe it's not even worthwhile breaking out. It's a certain amount of work. Almost the entirety of what we call fee and other income is the HK revenue share. I hope that's a sufficient answer for the moment.

Okay, yes, we'll work on that table. Next question. Separately, in responding to my question about the ownership interest in HK on the last earnings call that sits on the balance sheet at $14 million or so, I'm not clear how we as outsiders who don't have visibility into the HK financials can estimate its true value today, let alone where it might be in the future. I think we all know it's a lot more than $14 million historical cost, but how much so? Is there any information that can be provided? Or if it's already provided, please let me know where to look. That would shed some light on what the business generates in terms of sales, profits, et cetera, so we can make an educated estimate of what FRMO's 5%-ish ownership interest may be worth.

Okay, fair question. There are a number of approaches you can use analytically. I personally would approach it methodologically in the following manner. You look at the number, which as of February 28th is $15 million plus. That value is largely derived from the investments that are held on the balance sheet of There is some loosely described plant equipment, computers, leasehold improvements, things of that nature, office furniture, but the bulk of it is the investments. So if there were no money under management whatsoever, that number wouldn't change tremendously. So the question is, all the money we have under management, what is that worth? Different ways of approaching it. Some of it is performance fee income, which might get a higher multiple. Some of it is conventional investment management fees that arguably deserves a lower multiple. The way I look at it analytically, I would say a diversified investment management company, especially one that has some really interesting projects on the move like our involvement in crypto. By the way, we also have some crypto investments in HK, one of which is our investment in Hashmaster because HK owns 50 plus percent in Hashmaster. And I would argue that's probably worth more than the carrying value. But in any event, if you take the asset center management with, let's say, roughly $7.2 billion. And if you said there were 3% of assets in management, you can do the calculation. So if we have a carrying value of x, and if it's applied roughly a 5% interest, you divide by 0.05 or multiplied by 20. So if you did that, there's number $15 million crude numbers that gets you $300 million. and then you'd multiply the assets under management by 3% or 0.03 if you like, and you could do that calculation. The sum of those two numbers, I would think we'd give one a reasonable valuation. So you would take the sum of those two numbers, and 5% interest, you multiply it by 0.05, and I think that would be a fair approximation of the value. So that's a methodology you'll have to do the calculation. I hope you find it adequate.

Next question, how should we think about the current value of FRMO and whether it's undervalued today? The majority of the assets, as best I can tell, are valued at fair market value, TPL, GBTC, the funds, et cetera. So this is clear cut as to the current value. There are lots of relatively small investments measured at cost, but they don't seem that material. The primary assets I can see on the balance sheet that could be materially undervalued are the two I've inquired about above. Perhaps they are worth as much as $100 million or so more than stated book. FRMO's tangible equity netting out non-controlling interest is $224 million or 5.09 per share. If I add in $100 million of excess value above book value for these two assets, I can add another $2.25 per share and get to perhaps $7.35 per share or so. Are there any other meaningful chunks of undervaluation on your balance sheet where there's another $100 million of value?

Well, I don't know how much undervalue there is or not, because that's an entirely subjective criteria. I can just tell you what we're trying to accomplish. So what we're trying to accomplish is build an operating business out of literally nothing. So an operating business, or you could even say several operating businesses, relate to crypto, cryptocurrency. Some of it relates to Bitcoin mining. Some of it relates to, you would say, cryptocurrency infrastructure and support, like Hashmaster. And we don't know how cryptocurrency is going to develop in the future. Personally, I'm very optimistic, but the entire cryptocurrency project is still an unproven enterprise from everyone's point of view. And as I said earlier, we're still learning. So I would be hesitant to say what the valuation of that might be. In success mode, obviously it could be pretty considerable. So let's look at it this way to try to give you an idea. I'll just bring it back to Winland. So we buy these machines. We put them on the books and we have to estimate a certain useful life. We estimated three years. maybe that's too conservative. Maybe it's not. Other publicly traded companies use five years. Maybe that's a better estimate. But our experience is in the mining space, machines become obsolete something like three years. In the case I just cited, we were very happily not in that circumstance, but it could change in weeks. So we'd like to be conservative. In any event, What was the example I cited? We took a machine, you could debate what it says being useful. Life is in success mode in crypto. We converted that asset, if you want to look at it this way, to Bitcoin. Infinite life. So we're taking finite life assets, converting them into infinite life assets. So let's look at it in an inflation sense. Imagine we were a gold mining company. But instead of mining gold and selling it, We're mining the gold. We're only selling enough gold to just pay our operating expenses, and we kept the money, meaning we kept the gold. So let's just say we're a gold mining company in the year 1900. That was our practice. We would sell enough gold to cover our operating expenses, and we would have put the gold in a vault. No company ever did that with one exception, which is Goldcorp. circadian company that was ultimately acquired by newmont and newmont ceased that practice but he went there was a number of years gold corp was actually doing something like that so the world has very limited experience with that but let's just say if you did the calculation there was a company here in 1900 they're extracting gold and just left the gold in the vault would mean that it would mean it would be on its balance sheet what would be its net asset value today relative to the same company with the same production and just sold them along the way. I think the answer is obvious. It would be much, much higher. So in a sense, that's what we're trying to do. Now it's made it a little more interesting in the case of crypto and the following reason for the following reason. The following reason is the world of gold. If the price gets high enough, the world's going to extract more gold. In the case of crypto, specifically Bitcoin, no matter how high the price gets, there's only at the moment roughly 1.6 million Bitcoin ever going to be mined. And for the next 375 days roughly, they're going to be mined at the rate of six and a quarter every 10 minutes. So in 375 days, there's going to be 1.3 million coins left. And we know the rate of production of those 1.3 million coins is going to be between that date, roughly a year from now, and the year 2140. This is a lot of scarcity value. It's called digital scarcity. So if you can enforce digital scarcity, is that a better tethering device for currency than gold? Obviously, the fiat system in the world is clearly breaking down. So I would argue that even though there's a lot to be said in favor of gold, and we have gold-related investments, digital scarcity, assuming it can be faithfully executed, which is still an open question, but I believe it can be done. Now we're building a company that is going to hold digital scarcity instead of gold scarcity. what would that theoretical company in 1900 would have been worth? Would it have been worth the value of the mining equipment at 1900 prices plus the small amount of gold it had in the vaults? Was it worth that? Or are you able to make some assertion of what the gold price might be since your business model is going to be unchanged for the next 130, 123 years are you entitled to make some kind of assertion as to what your nano acid value is ultimately going to be and then discount it at a different rate it's just an open question i don't know the answer to that question but that's the valuation paradigm that has to be solved and that's what we're trying to do so you think that the enterprise would be successful and it's going to have an appropriate growth rate Well, then you know what the answer is. If not, then you would value it at an asset value. That's the valuation enigma, so to speak. So I hope that's a lot of information.

Next question. Please elaborate on what entails the non-cash fee revenue.

I can probably answer that, Stephen, here. That's cryptocurrency mining revenue. So that's how, on an accounting basis, the income is booked as the crypto is mined because the crypto is retained on the balance sheet. But as it's mined, you calculate the sales value of it, the market value of it. That's just an accounting entry for the value of the crypto at the moment of mining.

Okay, next question. I wanted to see if you had any thoughts on the rise in mergers and acquisitions activity we are seeing in the oil and mining sectors. Just in the past week, we've seen Exxon connected to Pioneer Natural Resources and Glencore attempt a takeover of Tech. Should this activity bode well for FRMO's holdings, either direct or indirect, via revenue from the inflation ETF?

Well, let's do it this way. In the world of gold, you could make the assertion that something like two years now, the way mining executives describe it, they describe it as a hole in production. What does that really mean? That means that unless something is done roughly two years now, production is going to drop. Why is it going to drop? Because we really, as an industry, we really haven't been investing the way historically the industry has invested. So two years is not enough time to start projects and bring them to production levels. So that explains the merger and acquisition activity. Oil is the same thing with one singular reason. difference that difference is there's a geopolitical dimension to oil that doesn't really exist in the world of gold and there is a slight i just to complete the thought there is a slight geopolitical dimension in that you'll notice central bank heavy central bank buying of gold in the last six or so months but that's nothing like the geopolitical orientation of oil what's the geopolitical orientation of oil you'll observe that the nation of Japan a little while ago announced they're going to buy Russian oil. So they were part of the sanctions against Russia. So the oil is going to now be moving east to Japan. You'll also observe that Saudi Arabia has made oil deals with China. And the oil is going to be sold for Chinese currency, and presumably Saudi Arabia will use the Chinese currency to buy products in China. So in addition to an OPEC cut, and who knows if that's going to be successfully carried out or not, but in any event, from the Persian Gulf, you have Iranian oil moving east to China. Now you have Saudi oil moving east to China. And the Chinese have lifted all the growth constraints on their economy. So production cuts, the Ukraine war, the Chinese lifting of growth constraints. You can tell what the investment in oil is just looking at the rig count, the global rig count, and the United States rig count. We've got an issue in the world of oil. So there's not enough time to make the investments that need to be made, if they indeed could even be made, given the hostility to the energy industry. So the next logical thing to do is to engage in merger acquisition activity. So if the food industry historically became an oligopoly, and if the communications industry became an oligopoly, the information technology industry is an oligopoly. There's lots of oligopolies in the world. Why would people think that the world of metal and mining wouldn't be an oligopoly? And why would people think that the world of petroleum wouldn't become an oligopoly, especially since going back over a century, that's exactly what it was. So I think we're heading in that direction. And that's part of the inflationary hypothesis.

So hope that's enough, Therese.

Yes. Next question is from a shareholder self-described as nerd who likes libraries. On the Horizon Kinetics website, many of the pages have a picture of a library that appears to be computer art. If any are an actual location, please name the library and location adjacent to the picture on the website. So lots of a question, more of a request.

Okay, well, they're actually real libraries, but why don't you answer it, Steve? They're real libraries. They are real libraries.

And I can understand even, I think they're so beautiful, I can understand, and some of them are so odd looking to us in the 20th century versus like 19th, 15th century times. space and architecture and art devoted to these rooms, how one might think they were artificially constructed. So the names of the libraries are the Stephen A. Schwarzman Building of the New York Public Library, the State Library Victoria in Melbourne, Australia, The Stuttgart City Library in Stuttgart, Germany. That's the one that's all white. It looks like a plastic building block construction. There's the Morgan Library Museum in New York. There's the George Peabody Library in Baltimore, Maryland. The Trinity College Library in Ireland, Dublin. The Yale University's Beinecke Rare Book and Manuscript Library. the Strahoj Library in Prague, Czech Republic. I took that question also as a kind of a request and those at Horizon Kinetics who deal with our technical aspects of our website are now working on attaching those designations to each of the appropriate weather matching photos. So that should be coming. Those were chosen, by the way, by other employees who have been in a positive sense, constructive sense inculcated by Murray. with an appreciation of history and old and rare books. And so they, as a group effort, went and selected these various photos, which they properly paid for because we believe in intellectual property rights from the purveyors of those images.

Thank you, Steve. So next question. Does management have any family that also holds significant amounts of FRMO stock?

Well, if you can leave myself first, Steve, then you can answer. So in my case, it's in my name and my wife's name. So the other family member is the best of my knowledge. I don't have anything that's meaningful that you could add to the total.

In my case, I did not share it with my family, but my wife did request some years ago, many years ago, that she wanted me to buy 100 shares for her, which I did. Her motives for that might have been different than mine might have been. Her training is different. She also asked me once to buy 100 shares of Facebook, which I did as requested. I don't necessarily agree with all of those choices, but I was serving her interests.

Okay. Given that... For FRMO, quote, the identification of any business opportunities will follow the process employed by Horizon Kinetics, end quote. Could management describe what this process is, as well as provide some color as to what the culture of Horizon Kinetics is like and how it is maintained? How are decisions made between the founders at FRMO and what are the main things that management is looking for when identifying attractive investments that may be different from what other investors are doing?

Okay, well, those are a lot of questions. I'll try to – it would require a lengthy period of time to answer them all, so I'll try to distill it into something that's relatively digestible. And let's do it this way. If you made a list of the companies in the S&P 500 – Those industries generally represent the investment alternatives. So the sector is the industries. Those represent the investment alternatives examined in groups. And the trouble, and they're different industries, there's utilities, there's banking or finance, if you like, there's technology. And to us, those investments represent two really big problems. those investment choices represent two big problems first problem is that in some of the investments let's say banking it's very hard to do diligence because you're dealing with a lending portfolio and it's very hard to figure out what's in there and how credit worthy it really is so the analytical problem in some industries that will leave it at that is just beyond our ability. Second problem is some of the industries, they're within the circle of our competence. We could understand them, but remember, you have to think of the S&P industry sector as individual companies to visualize this. Most of the business opportunities are fairly mature. So I can just pick a company at the S&P to illustrate this. I'm not picking on this company. I have nothing against this company. We use it as an example because it's an obvious example. So if I were to choose McDonald's, I have nothing against McDonald's. The food is available, generally speaking, throughout the planet. Anybody who wants it could buy it. Anyone who chooses not to consume it, for whatever their reason is, will not consume it. So consumer preferences, such as they are, are largely fixed. So how can one grow that business? The problem is only at the expense of a similar business. So the world food consumption, given the population growth trends, is not going to increase dramatically. What might change is the choices people make either for one company or against one company. So a lot of the companies, the business prospects are kind of static. And that's problematic if you want to grow in that asset value. So once you exclude and there's hundreds of examples of that. I just gave you one. Once you think of that, it's easy to say, why does Nefromo buy business A or business B or business C? And surely it must be those that are within your circle of competence, and of course there are. But then we have to deal with the problem of stasis. And in a mature industrial economy, that might be an unmanageable problem. So if you really want to grow a grown man that's of value, you have to take what limited skills we have and apply it to an emergent business. So when you look through the range of emergent businesses, what are their choices? Well, we could develop pharmaceuticals, but we're obviously, I don't have to go into it, we're not going to develop pharmaceuticals. We could develop artificial intelligence, but I don't have to go into it because you know we're not going to develop artificial intelligence. So you have to pick something which is within our circle of competence where we have more than adequate capital to invest in it without risking the bulk of our capital. And that's how cryptocurrency came about. There may well be other related opportunities in the crypto space And there may be related opportunities in the financial services space in things like exchanges, custody, businesses that pertain to financial management. That's where the bulk of our effort was directed these last six or seven years. We selected the cryptocurrency space. So going back to the example of Winland, because there it's a cleaner company. There aren't all the different investments that you have now for our mo. And basically, as I said before, we're converting, we're taking asset and growing the asset at its internal rate of return by converting it into the money equipment, which then becomes converted into a permanent asset. So how many businesses in the world and you acquire a capital asset and convert it into a permanent asset. You can't do it in energy because the energy has to be consumed. You could theoretically do it in gold or silver even if you wanted to hold all the gold in your balance sheet and not sell it. It's just that we can't find a business like that because nobody does that. If there were a company that did that, we'd be very interested. The closest you find to that are the royalty companies where you say there's a future earning stream based on gold, so you could say, well, at least there's gold in the ground, but even there, it's gonna be converted into cash. So I guess, I hope this now gives you an insight into how we came up with our ideas and how we then deployed the resources we had available, both capital resources and human resources. The process takes a long time. It's a lot of discussion and a lot of small attempts before we commit any meaningful amounts of capital. A great deal of thought and discussion goes into it. So over the years, if you look at all the transcripts of these calls and you compare the early ones with the one we're doing right now, I think you'll see the evolution of the ideas play out. So remember, we're learning as we go. because no one's ever written a textbook on this subject. If there were a textbook on this subject, chances are it would be a mature industry, and maybe we wouldn't even be interested in it. But I hope that gives you some insight.

Okay, next question. Mr. Stahl has, in the past, talked about how the investment case for Bitcoin revolves around the idea that Bitcoin and blockchain enables high expectations idea of the denationalization of money. Some questions I have around this thesis are, one, the global currency market already exists for existing sovereign currencies to freely compete for people's adoption, does it not? For example, my understanding is that Venezuelans prefer to transact in U.S. dollars rather than the domestic currency. which is actually Pierre's law, not Gresham's? And two, given the first point, has the euro-dollar already won the competition of currencies, the euro-dollar being backed by the, quote, energy, end quote, of the military and political breaches of the world's only superpower? That's the question.

Well, okay, so I'd answer it this way. The dollar, the euro, All the currencies, they have one thing in common. They are fiat currencies. They're constantly debasing. And the nations behind them, although you could say that the nation backs it, but the obligation of the nation is only to give you a unit of currency. So it's not tethered to anything. So if you happen to have a dollar in your pocket and you pull it out and you look at it, what does it say on top of it? It says Federal Reserve Note. So what does that mean? That means if you went to Federal Reserve and you wanted to exchange a dollar for this dollar, you can do it. If you want to get an asset, you have to go into the market and buy it. So basically, what is a dollar? A dollar is an obligation of the central bank. So it's an IOU for a dollar with no interest. Basically, it's a non-interest-bearing perpetuity. That's it. That's what money is. That's all it is. The money supply is increasing, and it's increasing in every place in the world faster than the supply of goods and services. So if the money supply increases faster than the supply of goods and services, you get inflation. If the money supply decreases relative to the supply of goods and services, you get deflation. Fewer dollars chasing the same quantity of goods leads to deflation. It's very, very difficult to keep the money supply matched with the production. In this particular case, globally, no one's trying to do it anyway. So there are nations like Venezuela that have a chronically high inflation rate. Dollar is superior to the U.S. dollar. The U.S. dollar is superior only because the inflation rate in Venezuela is so high. When we talk about inflation and we talk about debasement, we're only talking about a difference of degree. So if we're possible to belong to dollar and short the Venezuelan Bolivar, that spread you can make a lot of money on. But how do you sell short the Venezuelan Bolivar in the controlled economy? So operationally, it may not be feasible. So the world has two choices at the moment. There's precious metals and there's crypto. So precious metals, Even though the idea of tethering a currency to precious metals to prevent debasement is a good idea, but there have been episodes in history of precious metals even leading to inflation, like the influx in the 16th century of gold from the so-called New World to the Old World. That is a great inflationary episode of history. And some historians argue the world hasn't even recovered from that. Some people call it the price revolution. So if even gold and silver can have debasing values, there really is a market for something that we would call digital scarcity. So Hayek and denationalization of money He never thought it out that far. He was never able to envisage how you would overcome the authentication problem. He could only envisage you have to take money away from the governments and the central banks. But how do you know the people who control it will abide by a set of rules? And the answer was, of course, you wouldn't. You couldn't know. And the second question was, Well, and what mechanism is going to assure you that they are indeed abiding by the rules? And there was no mechanism until the advent of blockchain and really until the advent of Bitcoin. In the case of all these other cryptocurrencies, maybe I'll pose a question that you didn't ask or maybe you thought about, so I'll ask it for you. So why can't these other currencies play the same role? And the answer is because of the government's mechanisms. that in most cases there's a committee of people that could theoretically change it if they felt like changing it. In the case of Bitcoin, it's only a majority of users could change it. So let's say they did that. I personally think it's very unlikely, but I could be wrong. Let's say a majority of people decided we would like to debase this currency. But you see, your protection is it's open source code. You could, by yourself, fork the Bitcoin and leave it in its undebased fashion. Then maybe only a minority of people want to use it. And that's fine. Because you don't need the majority of people ever to accept it. All you need is the community of users, however small, will... be able to exchange a currency that is not being debased. So anyway, so come back to the thrust of your question. I don't think any of the fiat currencies on the planet are going to be able to displace or replace crypto. One other thought I will leave you with, look at the various SEC publications, go on the SEC website and look at how many people are being hired with an expertise in crypto. And that's the United States government. And I think that tells you everything you need to know about the future of crypto. So what's next, Ceres?

This is a rather long intro to a question, a couple of questions. Another question related to Hayek and Gresham's Law. From the third quarter of fiscal 2022 FRMO conference call, it appears that management is betting on the store of value case wherein people aim to hoard the asset in contrast to the medium of exchange case. In the store of value case, does Hayek's money denationalization even matter here since he appears to actually favor Pierre's law? In denationalization of money, Chapter 6, titled The Confusion About Gresham's Law, Hayek seems to argue against the hoarding tendency of good money. He mentions that Gresham's law is not, quote, not false, is not false, but it applies only if a fixed rate of exchange between the different forms of money is enforced, end quote. And the new quote, enforced, end quote, is the key word here. which does not seem to be the case in our current world where a free market of global currency exchange exists, which includes the ability for people to freely exchange USD, U.S. dollars. That is, quote, bad, unquote, money enforced by governments will not, quote, drive out the good, end quote, and will not remain in circulation because a floating rate exists between currencies. In what seems to be further implicit support for Pierre's law dynamic relating to Bitcoin's inflation hedge narrative, Hayek claims that, quote, whenever inflation got really rapid, all sorts of objects of a more stable value from potatoes to cigarettes and bottles of brandy to eggs and foreign currencies like dollar bills have come to be increasingly used as money, end quote. From this perspective, Hayek Applying Hayek's thoughts to Bitcoin seems to actually be making an argument against the store of value case for Bitcoin. In fact, as a practical example, in the previous quarter we called, Mr. Stahl mentioned that crypto mining companies themselves are transacting in Bitcoin rather than US dollars versus hoarding Bitcoin. Given this information, I wonder how much of Bitcoin hoarding is based on lost keys or on some factors other than Gresham's Law. Bottom line question being, is management's apparent dual reliance on Hayek's work and Gresham's Law inconsistent? That's the question.

Okay. So before I answer it, let me just define some terms. So just for everybody we're talking about. So there's Gresham's Law. Gresham's Law states that Bad money drives out good. In other words, what would happen is the so-called sound money, you would hang on to that. Some people use the word hoarding. You would hang on to that. If you wanted to buy something, you would use it as a basic currency. There's a contrary view, what's called Thiers' Law, spelled T-H-I-E-R-S, and that gives the opposite view that says good money drives out bad. So the good money drives that bad. Where does that come from? That comes from if you take the perspective of the people who have services to sell. So why should they accept money? They want to sell money. So in the instances where these laws came to play, historically, meaning the originaries of the law, they were thinking about gold. So for Thierry's law, they would say, yes, I understand that there's the basic currency, but the higher of some products, I don't want that. I'd much rather have the gold. And in different circumstances, we've seen different situations occur. So for example, let's look historically. Historically, during the Civil War, when the North had to buy all kinds of goods and services for the military, you could say that might be an instance where Gresham's Law actually came into play. And even though the government set the price of gold, gold traded way above its parity, meaning gold traded way above the price set by the government. And you could take the case of, let's say, occupation Germany post-1945, that there was occupation currency, but no one wanted it. Why did no one want it? because the American occupation authorities gave the plates, the production plates, the printing plates for occupation currencies to the Russians, Soviets, and they obviously made use of that privilege. So if you happen to have real goods and services people wanted, they wouldn't sell it, generally speaking, for occupation currency. So things like bread, cigarettes, Other things became currency. So what was the problem with that? Well, for short-run purposes, because you need these things, they actually became the equivalent of money. But for long-run purposes, you can't store bread. You can't store most food products. You can't even store cigarettes for very long periods of time because they become stale. So it's hard in practice. from most products to enact DA's law. Although, in the case of gold, it's been observed to happen. It's also been observed to happen in silver. So anyway, just wanted to give you that background so you know where we're coming from, where we're actually. So, relying on a story value theory, We're not relying on a transactional theory. We're not relying even on Hayek's conception of what money is supposed to be. It's just none of it. All we're asserting is that the post-World War II fiat money system is breaking down. So there's going to have to be an alternative to that. That Before, it wasn't as visible as it is now. Now, the cracks in the system are highly visible because there are nations that are openly saying they want to move away from the dollar as a world reserve currency. If that happens, we really have untethered inflation in the dollar area. And we might have a lot of inflation, probably will, in other fiat currencies as well. What the world currency situation is going to look like in a few years, just don't know. All we know is the fiat system is breaking down. Bitcoin, it's merely one possibility. It's not the only possibility. The reason I personally like Bitcoin is it's not within the control of a small group of people and has open source code. In certain respects, it's better than gold. In the case of commodities that ultimately are consumed, I think it's better than a commodity standard. It's probably even better than a gold standard because given the purchasing power, there's no limit to the number of ounces of gold that could be created. Now, as it pertains to Bitcoin and people lost their keys, I don't think in the case of Bitcoin, it's a large factor. Chances are it's X percent. I would assert that I do not know that that X is in the single digits. I don't know if it's 3% or 4% or some other number of keys that are lost. So you could say the effective supply of Bitcoin is maybe 4% or 5% less than the actual supply of Bitcoin. That might be true. But we can't say at this point whether it's going to be the A's law or whether it's going to be Gresham's law. We don't know if it's going to be awarded. So I had to guess. This is nothing other than idle conjecture. So in an investment sense, we're not guessing. We just think that a system of digital scarcity is superior to any other system. That's the only assertion we're really making. But if you want to be a guest, what's going to happen? For purposes of expenditures, governments are going to use their fiat currency. For purposes of revenue, however, they of course will accept, let's say it's government, they of course will accept the dollar as legal tender, let's say in payment of taxes. But I believe ultimately they're going to accept Bitcoins. And ultimately, I believe the government is going to hoard it. So I believe the day is going to come that people are going to be able to pay their taxes in Bitcoin. And if you own low-basis Bitcoin, so the government collects a store of it, they might even let you pay taxes without realizing the capital gains on its appreciation, just to get that. And there's going to be a hold in crypto. And they'll use it as a device to try to rescue governments from insolvency. I really believe that's going to happen. Because the way it's going, you have a lot of governments. They're on the road to insolvency. They won't really default. They'll just keep creating currency. But the financial situation in most governments in the world is actually pretty dire. So anyway, so that's how I think it's going to work. ultimately evolve. So we're not making a bet on hoarding or the opposite. All we're willing to say is that digital scarcity is better than the available alternatives. And that's about as far as it goes right now.

Next question. Can you please discuss in further detail the expected value of the Mt. Gox claims It's timeframe of realization, i.e., early payout in six to 12 months versus late payout in many years. And what do you intend to do with the proceeds? Since it will likely be received in Bitcoin, will you simply hold? I'm aware that you've mentioned in the past that you are sharing in the upside with some of the claim sellers. However, it would still be great to put a rough number together on how many Bitcoin you anticipate receiving and what that will mean for Winland and FRO holders. Also, what was the cost basis of the investment? Is it the full $350,000 on the balance sheet, or does that figure include other bankruptcy claims purchased? Really looking forward to hearing more from you about these claims and other investments.

Okay. To start with, I didn't calculate – The current market value, I probably should have, but I didn't. I will say this, that relative to the $350,000 cost, it's a lot higher. I just don't remember what the number is, so I'll have to get that for you. I don't want to speculate on what the number might be at the moment. It's just a lot higher than $350,000. That $350,000 balance sheet, that's the claims. That's it. That's what we got. There is some sharing in certain circumstances, but the bulk of it, we get that. So it's a fairly robust number. And at $30,000 Bitcoin price, it's not a small sum. So we have 63 Bitcoin that we got from mining, plus we're going to take these Bitcoin in kind. So I'll get that number for you, and I'll certainly share it. I just neglected, so it's mea culpa. I neglected to have that number at my disposal. I was, I hope you'll excuse the expression, I was otherwise occupied the last several days.

Of course. Next question. Why are there no first quarter and third quarter transcripts for fiscal year 2021 and no first quarter transcript for fiscal year 2022. On the FRMO website, they appear to have been skipped over. This was discussed in the previous meeting, but I also now notice that the FRMO website directory has been changed to quarterly conference calls rather than quarterly conference call transcripts. And the most recent quarterly call only remains available as an audio replay. Does FRMO plan to discontinue including text transcripts in the future? Okay.

Do you know the answer to that question, Steve?

I do. Yeah. Well, I'm glad that I was reminded again. We did some catch-up with some of the old inventory of transcripts, probably before the prior quarterly conference call. Between the prior quarterly conference call and today, The January 17th conference called Transcript has been created. It just hasn't, unfortunately, yet made its way through the process chain to be on the website, but I dare say it will probably be on the website by tomorrow or the next day. As I mentioned last time, I've been engaged in trying to find an editor of suitable skill set, which includes sufficient financial background and professional writing background. And that person I have found. We worked together for a little bit a couple of months ago. He's actually been finishing a very high level Business Journalism kind of career development program at Columbia University School of Journalism. And that semester is going to be over within the next few weeks. And one of the first things I'll have him do is to get through the backlog of the remaining few transcripts. So he's actually very highly qualified. I look forward to working with him.

Okay, next question. In the recent FRMO Corp. Promex Equity Corp. Top 5 Holdings and the CMSC February 28, 2023 report published to the FRMO site, the MIH investment market value is reported at $12.8 million. I assume this is Miami International Holdings, Inc. How is the market value calculated here as in the official quarterly report the investment is carried at cost and of just 4.3 million? In a similar vein, could Benjamin also elaborate on how CMSC market value is calculated? Thank you.

Okay, so just repeat the first part of it. The MYAX value, where is that value coming from?

You said the mark, let's see, said on the 2000, oh, on our website where we publish the crypto and also the top holdings. I believe that's what he's referring to.

All right, so what was the value? I didn't know. I'm sorry.

You said the Miami International Holdings market value is reported at 12.8 million.

Well, the market value of Miami International is, don't forget, the market value we own, let's put it this way, the market value we own of Miami International is the outgrowth of the original Miami International Investment plus the write-up of the Minneapolis Grain Exchange. You see, what happened is we exchanged Minneapolis Grain Exchange for MIACS. So that higher value is the value we got in exchange at the then valuation for MIACS. Whenever that deal was done two years ago or so, that was the valuation we got. I believe the carrying value is something in the order of $7.25 a share or $7.35 a share. I'm sorry I can't be more exact because I don't remember to the penny, but something like that. So we have the original cost basis of the – my accident years ago. Then we have – this thing, and the bulk of our MyEx is a MyEx that we acquired via the Minneapolis Grain Transaction, and also you will recall that MyEx bought the Bermuda Stock Exchange from us, bought it from everyone actually. We got MyEx for that. So that valuation you see is roughly seven and a quarter. I may be a few pennies off, let's say seven and a quarter to be conservative. That's where it comes from. So it's the value we got at exchange on that moment in time. So it's not the cost basis anymore. It's the value we got in exchange for those two transactions. That's where the value comes from. You go back in prior annual reports, required prior reports, you'll see we had Bermuda and Minneapolis. That's what evaluation comes from. That's how it was valued. That was a fair value at time of transaction.

And just to clarify, when you say MIACs, you are referring to Miami International Holdings. Am I correct?

I'm referring to Miami International Holdings, to which we affectionately call it MIACs.

Thank you. Okay. Thank you very much. Next question. Management and HK and Horizon Kinetics have talked often about U.S. debt to GDP and the unlikelihood of rates being raised very high. Given the rate hikes of 2022 that were some of the most aggressive in decades, how high would rates need to get or what other data would management need to see to reconsider their thoughts on the Fed's willingness or ability to hike to levels comparable to the 1970s? There is, after all, surely data that the Fed has not, that the Fed has, that is not publicly available.

No, you don't need, you don't need available, you don't need data from the Fed. So let's put it this way. The 10-year Treasury yesterday was yielding 3.58%. The 10-year Treasury, I'm going to just look it up right now to One second. The 10-year Treasury on June, I think it's 13th or 14th. I'll have it in a second. On that day when the Fed began their aggressive interest rate increase, the 10-year Treasury on June 15, 2022 was 3.33%. So what the Fed did is, yes, it raised interest rates very aggressively. But the market resisted that. The market resisted it because the economy can't handle it. So the yield curve became inverted. When the yield curve became inverted, this created a mini banking crisis. Why did it create a mini banking crisis? Because the long-term assets are earning less than the short-term assets or the short-term liabilities. And that's a problem. So why should people keep their money in the bank and make up a number of 2% in the bank? And they could buy a treasury bill and get twice that. So it led to a potential demonetization of the banking system, which is exactly what we're referring to. The economy couldn't withstand it. Now look at the federal funds rate, look at federal fund futures, and you will see what the financial markets are implying for banks. the financial markets are implying for the future of interest rates. They're lower, not higher. So the market can't withstand it. The market can't withstand it. I gave a lecture on this subject recently at Woodham University, so I'll encapsulate it. I'll give you the 100-second version of it. See, the basic problem is that the industrial economy of 100 years ago or maybe 125 years ago you could, it was capital intensive. So you could largely control it with monetary policy changing districts. So the modern economy, the modern economy, well, 40% of all GDP is government spending. It's federal, state, and local. So that hasn't changed. That keeps rising. So 40%, at least so far, has been immune to any changes in interest rates. That in itself is significant, but it's not the end. Why is it not the end? Well, let's say you took the healthcare industry. Well, half of the healthcare industry actually comes from the government. For Medicare and Medicaid, healthcare industry is 20% of the economy, roughly. So half comes from the government, so it's already accounted for in our calculation, but the other half is private. So are people dissuaded from taking treatment? for the various ailments that afflict humanity because interest rates are higher? I think not. So no one's going to defer or very few people are going to defer necessary treatment because interest rates are higher. That can go on, but higher interest rates is not going to deter people from private education. It's not going to deter the food industry and the utility industry. Well, the higher interest rates is just a a rate-based pass-through. You get a rate increase from the utility commission, no matter how high the rates are. So I could keep going in that way, but I don't want to exceed the 100-second self-imposed time limit. But you get the idea. In a modern economy, you can't apply that because the modern economy is organized in a way that was inconceivable and Professor Irving Fisher of Yale University devised monetary theory. So we're going to have to think of something else. But I don't know what that is. And the trouble is nobody else does either. So that's ultimately the problem.

Okay. Does management have any thoughts or concerns? about, quote, Operation Chokepoint 2.0, end quote, as originally raised by Nick Carter of Castle Island Ventures, as well as the Cooper and Kirk law firm later parroted by the Wall Street Journal. The concern is around a perceived coordinated effort by regulators and banks to make it more difficult for cryptocurrency companies to operate. This effort is said to include things like pressuring banks to stop providing services to cryptocurrency companies, launching investigations into cryptocurrency companies, and making it more difficult for cryptocurrency companies to obtain financing. A certain bank held by Horizon Kinetics blockchain development ETF was recently shut down by regulators. Are crypto frogs getting boiled here?

I don't think so. So that's one side of the coin. And note that those are opinions. So now let's go to some facts. The Chicago Board Options Exchange, CBOE, look at the ever-expanding digital asset exchange. NASDAQ just established cryptocurrency custody unit and London Stock Exchange not very many days ago announced their creation of group to clear crypto transactions. So those are all regulated entities. Those can only be done with regulatory approval. So I would say in reference to what people would refer to as Operation Chokepoint, I would say that if I were the regulator, a frightening thought for one and all, but if I were, I would say that I don't think the typical bank and cryptocurrency mix very well, so I don't think crypto and leverage mix very well. I've said that many times, and typical bank is 10 times leverage, so I wouldn't want to encourage... much in the way of banks and cryptocurrencies. But exchanges are an entirely different mechanism. So what people refer to as Operation Chokepoint is merely a way of directing cryptocurrency into the proper, regulated, transparent units, and not an effort to in any way inhibit the development of exchanges. Cryptocurrency is an asset class. Those are just three examples of regulated exchanges. What are they regulated by? Obviously, the government. The assertion that there's some organized effort to destroy crypto, I don't think it bears scrutiny. It doesn't withstand scrutiny. I guess it bears scrutiny. It doesn't withstand scrutiny.

In the past, management has talked about the idea of uplisting FRMO to a larger exchange. Does this mean OTCQX or does this mean a major exchange like the New York Stock Exchange? What benefit, what actual benefit is there to FRMO attempting to list on a major exchange?

Well, the answer quite simply is, like I said before, I have been otherwise preoccupied by a variety of things, so I haven't devoted very much effort. It's another mea culpa. I've been otherwise occupied, so I've been doing other things. So at some point in the future, I'll have the free time to address this very important question. But at the moment, I just don't have the available time to give it the consideration that it requires. So I'm just going to leave it at that.

Okay. Is it a problem that over 50% of all Bitcoin nodes are hosted in unknown geographies? For example, over 50% of Bitcoin nodes are running on the TOR, that's T-O-R, network. What is management's thoughts on the concentration of mining pools in the Bitcoin network and the geographical concentration of those hosted pools? Also, how does management think about the lack of clawbacks of Bitcoin in the case of fraud and how that hinders adoption?

Okay, so let's do the fraud thing first. So the blockchain has never been hacked. The idea is the blockchain is immutable. So if you're going to have the same sort of policy that a bank would have, somebody can hack it. blockchain the bitcoin blockchain then you probably don't want to own bitcoin anyway so the presumption that you have to live with is no one's going to be able to hack it if no one's able to hack it we don't need any clawback policy now we're going to have a clawback policy they're going to need a committee to decide on how this actually happens and in what cases it actually happens and now we get to centralization and it's just another step to central authority, gets control over the Bitcoin, and before you know it, we're going to be debased. So I'm not encouraging that. Now, as far as the nodes are concerned, well, if we knew exactly where every node is, it would be a lot easier to hack it. So why, if we want a system that's, so far at least, impervious to hacking, why do we want it to be public knowledge where every node happens to be? Set someone with maybe a bad state actor with the resources to devote to that problem and actually figure out a way to hack it. I don't know what nation would undertake it, but there are nations with the resources that might try it. So the whole idea is anonymity or let's say independence or let's say resistance to a certain amount of scrutiny is a good thing if you want to protect the currency from those that would otherwise seek to control it. So for example, I actually started yesterday. I was reading it last night. I'm reading a book on the rescue of Norwegian gold when the Germans decided to occupy Norway. So look at it this way. So in theory, wasn't it that you would say if you were living at that time, isn't it a great idea that we know exactly where the gold is and we know it's safe and secure? Well, we know exactly where the gold is, but the people who would seize the gold, they know where it is too. And when the Nazis invaded Norway, they went straight for the gold. So maybe it would have been a lot better. In this particular case, the gold was rescued. But that wasn't always a guaranteed outcome. Wouldn't it have been a lot better if there wasn't a central depository for gold? If individuals owned gold, so that would be a way of preventing its seizure. That was one of the problems in World War II. We've never even found an answer to it. Gold reserves of various nations were seized. And some gold and some art worth tremendous sums of money have never to this day been recovered. So we really want to do that with Bitcoin? Well, I guess it's a debatable question. But count me down for I have no desire to see it centralized and get answers to all those questions, make it easy for the hackers. So I guess that's my position.

And here is the last question for today. In the first quarter fiscal year 2023 FRMO conference call, management mentioned that M2 velocity was low, because government spending is not being picked up in that metric. Could management explain this further?

Well, I don't actually, I'm sure I said it. I just don't have those figures in front of me. It requires access to certain figures. I'd have to, it'd take me a few minutes to figure out where in the databases they are. So I'll try to write something about it in the future. and explain it further. But it comes from government. Basically, it comes from central bank figures that I'll have to look at. So I apologize for just not being able to answer the question off the cuff.

Well, that was our last question for the day. So I think the only thing to do is to say your closing remarks.

Okay. Well, once again, thanks, everybody, for listening. lively question and answer session. I'm delighted to have done it. And, of course, we're going to reprise this in about 90 days. And thanks so much for your support and look forward to getting another round of questions in about three months. So thanks, everybody.

Good afternoon.