FRMO Corporation (FRMO) Earnings Call Transcript & Summary

Good day, and welcome to the FRMO quarterly conference call. [Operator Instructions] At this time, I would like to turn the conference over to Thérèse Byars. Please go ahead.

Thank you, Dan. Good afternoon, everyone. This is Thérèse Byars speaking. And I'm the Corporate Secretary of FRMO Corp. Thank you all for joining us today. 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. He will review key points related to the 2020 second quarter earnings. A summary, transcript of this call will be posted on the FRMO website in the coming weeks. A replay of this call will be available for 1 month, beginning at 7:15 this evening. To listen to the replay, the domestic toll-free number is 1 (888) 203-1112. The international toll number is 1 (719) 457-0820. When prompted, key in the pass code 5894204. These dial-in numbers are noted in the FRMO press release dated January 14, 2020, which may be found on the FRMO website by clicking the link called information statements and announcements. The press release can also be viewed on the OTC market's website by typing in the ticker symbol FRMO and clicking on the news link. And now I'll turn the discussion over to Mr. Stahl.

Okay. Well, thank you. Thank you, everyone, for joining us, and thank you, Thérèse. To begin with the formalities, the reason my colleague, Mr. Bregman, isn't here is, he is quite under weather. And we agreed that it's better that he get into a bed and go to sleep if that's possible, or if it's not possible just to rest. And people who customary listen to these calls, you might remember that we've both done this call when we were very much under the weather, we were both sick. We were hacking and coughing and all the other things that go with having a cold. And today, I feel pretty good and he doesn't, so I'm doing it by myself. And we probably, at some point, contributed to each other's illnesses back in the day when we did this. So that's why it's me, and hopefully, he'll be back to his former robust health in a couple of days. So that's that, and I say another thing in terms of general remarks about there's a lot of questions here, and either you're all collectively, incredibly perceptive in following what we say very closely or is it that maybe we say some things that piques your curiosity or has resonance with you. But the questions are really good. And the question touch on many -- all the -- many of the remarks I would ordinarily make in the prepared remarks section. So I'm not going to go into a lot of prepared remarks and leave more time for answering questions, since you anticipated what I was going to say anyway, or at least you didn't anticipate, you asked, you're prompting me for information I would otherwise give you in prepared remarks. So just to answer your questions directly, hopefully, it will be specifically pertinent to what you want. Let me say a few things. These are general informational things, there's usually lot of questions about cryptocurrency. So I'm going to give you some detail right now. You could write this stuff down or maybe we could just send you a spreadsheet or something if you don't want to write it down. Anyway, most of the cryptocurrency we have is in the form of the Bitcoin investment trust GBTC. So as of not long ago in the Horizon Multi Strategy Fund, which you can look at the market value as of valuation date in the notes, we had $9,298,000, I'm leaving out the hundreds, of that in the Horizon Multi Strategy Fund. And the Polestar Fund, we had $9,960,000. In CDK partners, $661,000; and Horizon Multi-Disciplinary Fund, $894,000. We also have some GBTC shares that we hold directly, we bought back in the day. And the market -- by the way, I'm giving you the market values as not long go, based on today's market value, that number would be -- these numbers would be about 10% higher, the numbers I'm giving you. So I don't know if it's exactly 10%, 10% is close enough for our purposes. We also own 7,644 shares of GBTC directly, so you can value that. We own 33.59 Bitcoins themselves. We own 34.12 units of Ethereum. We own 591.66 units of Ethereum Classic, I would give you prices, but they change every 5 minutes, so you can look them up. We own 42.59 units of Zcash and 210 units of Litecoin. We also own, through the Polestar Fund, about $82,000 of the Ethereum Classic Investment Trust and about $10,000 of the Zcash Investment Trust. And also on Polestar, we own about $15,000 worth of Litecoin Investment Trust. And we own about [ $454,000 ] of the Bitcoin Cash Investment Trust. And we own about $62,000, the XRP, otherwise known as Ripple Investment Trust. All that is in the Polestar Fund, so it's not direct. And we also own in the Horizon Multi-Strategy Fund on $64,000 of Bitcoin cash directly in that fund. We own $29,000 roughly of Bitcoin SV and Polestar owns about $5,500 of Bitcoin Gold and CDK Partners owns about $550 of the Bitcoin Gold. So add those numbers up, and it's a pretty decent sized number. And Horizon Multi-Strategy Fund also owns about $671,000 of XBT. And I think I have covered the cryptocurrency directly. So now when I give you those numbers, those are not the numbers -- those are numbers that those funds own in their entirety. So I don't want you to get the idea even though this is the way it's presented to me, I'm just reading off this sheet. So for example, what you need to do if you're going to find our proportionately what FRMO owns, let's take the Polestar for an example. I just told you Polestar owns [ $9,950,000 ] worth of Bitcoin. You need to multiply that number by the percentage ownership and that percentage ownership, calculated for me on another sheet of paper, which I'm a little bit reluctant to give you, but I will give it to you because I'm not sure this is the right number. But in any event, the grand total, looking through FRMO, this number is right, is about $5 million. And so if you do the calculation, the way this is done, and again, I'm not so sure this number is right. The Horizon Multi-Strategy Fund is -- owns $2 million looking through the FRMO ownership because FRMO owns 28% of the multi-strategy fund and FRMO owns $2,876,000 of cryptocurrency. In any event, the whole number comes to about $5 million when you look through -- I have a feeling that number is about 10% higher. But as I said, I've read you the numbers, you can do the calculation. And hopefully, your calculation is in accordance with what I just read you. But I wanted to give you -- I have all the information. Balance sheet highlights. I was going to say, about 15 minutes ago, I thought our November 30 cash was the highest in our history, but it turns out it isn't. Turns out, about 1.5 years ago, we actually had slightly higher cash. So if my math is right, we're about $44,000 below the all-time high cash. So anyway, [ the trust has a ] very liquid balance sheet. Also, you'll observe some items in the line item, investment in securities exchanges, it's a lot bigger than it was in the prior quarter. I think we bought something. We sold our pro rata interest in the Bermuda Stock Exchange to MIAX, Miami International Holdings, which is an option exchange and an equity exchange. We sold that for stock in MIAX itself. So we now have a decent-sized investment in MIAX. One other big change, you'll notice a [ lot ] in cryptocurrency and mining assets, primarily servers. We used to have $101,000 worth of computer equipment. And now it's big enough, we have $1,281,000 worth of cryptocurrency mining assets. Another interesting thing is, we also bought a building for $1 million. So we actually have some debt now. And we put $200,000 down roughly, and we took a mortgage for the balance. You'll notice on liability side of the balance sheet, there's $27,000 of current portion of mortgage payable. That portion of mortgage, the principal, we have to pay back over the next 12 months. The balance of the principal we borrowed, so let's say [ $72,000 ] is over the course of life on our mortgage. We did it because the interest rate was less than 4%, and we're using it to house cryptocurrency operations. And we are informed, hopefully reliably, but I can't be sure. We were formed by a variety of sources that we were -- if we were to move the cryptocurrency equipment [ out of the ] building, and were to develop the property or sell the property, we'd get a lot higher price. Whether it's true or not, I don't know, but so they say. So you have the highlights. And I believe, if I'm not mistaken, the shareholders' equity is at an all-time high, even with what we're doing here on the -- given liquidity of balance sheet, given the lack of leverage and the lack of action in various things. And don't forget, cryptocurrency is down from its high, actually, substantially, even though we'll talk about in questions and answers. And so I think we're doing reasonably well. So those are the highlights. And I thought what I'd do is I'd touch on the questions, which -- [ can add -- fill ] in a lot of things, as I said before, I would have said in the prepared remarks.

So here's the first question. And I'll read them as they're presented to me. The 2 biggest opportunities presented are Bitcoin and TPL, why are they sized so differently with available assets? Okay. Well, actually, they're not. What you see on the financial statement is the market appreciation. We didn't pay anything remotely close to the current market values with a cryptocurrency. Now some of the cryptocurrency, we just created by mining it. We didn't pay anything like these prices. So when someone thinks about it, I can see why they say, why are market values so different. It's not that we like one briefly more than another one. What we're doing is, we're investing in assets that are, let's say, off the beaten track. The average person doesn't do things like this. And we're not investing tremendous sums of money. If Bitcoin were to be a failure relative to our cost, especially in net of taxes, it wouldn't be a huge financial tragedy. The only way you can take risk is, you have to start sizing things small. If you size it big and something bad happens, well, then you're impeding your future. In our case, we're not doing that. And more about that later when we talk about balance sheet and how we fund these investments cause there are questions that relate to that. We'll come back to this. Anyway, you get the idea. It's not that we decide to put X percent into Bitcoin and Y percent into something else. But you say, okay. We could sell one and put in the other and equalize them if we like them both equally, but there's a very high tax cost of doing that. So we'd rather not do that. So for example, if you thought one was going to go down by X percent, X percent being tax rate, in market value and you sold it to prevent that happening but you pay taxes, then it's going to be a reality. So it doesn't really pay to sell these things. At least given the situation as it exists today. Okay. Next question. I hope that's a little bit informative anyway. All right. There's some gloritory stuff that I'm going to have to -- in the name of modesty, not read, but I'm very grateful that somebody thought that we deserved some gloritory stuff. But here's the actual substance of the question, what are some of your thoughts about the future of the RENN fund, your closed-end fund? It's very small, has a lot of cash, traded a significant discount with NAV and earns on fees for Horizon Kinetics, who seem like a perfect candidate to merge into when they were smaller, open-ended, rising Kinetics Mutual Funds like Market Opportunities Fund and even the Medical Fund. In such a merger, we had both in cash to these funds, make the investment funds fee-paying to Horizon Kinetics, eliminate the discount, assuming such a merger would be done in NAV for the brand holders. Is this a possibility? Would such a merger result in the end of the tax benefits, capital loss, carrier forwards that are inherent in RENN? Or could RENN grow by buying or merging with another close-end fund, or by slowly continuing to do rights offerings on which there are apparent limits on how much can be done in a given year? Thanks for your thoughts on RENN. Okay. To begin with, we are going to do things on RENN funds. So here's something I'm not going to do. We're not going to merge the RENN fund or the existing mutual funds. And a lot of reasons for that. But one good one is that we would unquestionably lose tax loss carryforwards that we purchase. So there are other reasons for not doing it, but that in itself is enough reason not to do it. We're going to start doing different things with the RENN fund that you really couldn't do in mutual fund. And I would love to tell you exactly what it is, but a couple of days from now, you'll see 8-K, and you'll see some of what's going to happen. I don't know what day the attorney is going to post the 8-K, or I would tell you. But I don't believe it's very many days. It just -- the conference call was this day and their filing is going to be in a couple of days. You're going to know when we're going to do things. And we intend to grow the RENN fund, and we have a lot of ideas on how that might happen. And the 8-K is going to relate in a small way to one of it, but it breaks in a bigger way to using tax loss carryforwards. So that's all I can tell you right now. I wish I could tell you more, but you'll see in a couple of days, what we're doing, and you should expect other things. Hopefully, they'll be accretive and they'll be value-additive. So look forward to your comments on that. Okay. Okay. In -- here are some other questions. In my opinion, how close are we to maximum performance on cryptocurrency mining servers? I know that you have mentioned in the past, and we might not be far off. Okay. So to answer that question, to give you an idea. The electricity consumption per terahash or per server, if you want to look at it that way, relative to the prior generation, roughly, I'll be off by a percent, roughly is down 63%. So it costs you, in terms of operational expense, since electricity is the overwhelmingly biggest factor, 63% less mine. That adds implications and we'll touch on in a second, but then the price for terahash. So here I'm going to pull my calculator out. Just give me a second, so I can give you a number. But at the end of 2017, if you were buying an S9 Antminer, a 13.5 terahash S9 Antminer. On a good day, and people at the time thought this was a good deal. You would've been paying per terahash on -- according to my calculation, $160 -- $162.96. Let's call them round numbers, $163. You can now buy a machine that consumes 63% less power than the former generation and it will cost you, I might be a few pennies off, roughly $23.5 per terahash. That's a huge increase. And I should tell you because it's important, that -- when that happened, and I think there's a question that relates to this in some degree. So I guess, I'm preempting the answer. But for Bitcoin, that's deflationary. It's deflationary for every cryptocurrency, basically, the same technology, give or take, is used in all those servers that mine any cryptocurrency. So why is it deflationary? Well, think about it. You take commodity like wheat or gold. And let's just say, for the sake of argument, that technology advanced so much, they just cost less money to grow meat. It's a big savings for a producer, it'll be logical to think that in the competitive world, all of that is going to be kept by the miners. It's not going to be kept by the miners. For the simple reason that somebody is going to -- it was weak, let's say, somebody would lower -- some farmer would lower their price to get market share. And cryptocurrency, viewed in that sense is no different. And then, of course, the equipment. So think about -- so we just talked about the cost of, let's say, the labor and harvesting the wheat, if we're using that analogy or the cost of the seeds that plant the wheat or a fertilizer. That's the analogy for the electricity cost, so there'll be operating costs. And what about the equipment costs? You need harvester, you need combines, you need tractors, you need barns, you need all sorts of things, maybe grain elevators. What does that sell in the manner in which I described. Let's say, the cost per -- let's say, it was a tractor with horsepower. Let's say, these aren't accurate figures, they're just for illustrative purposes. If a terahash was like 1 horsepower and 1 horsepower used to be $153 and went to $23.50, obviously, a tractor is a lot cheaper. That's the analogy. Well, that's what's happening with Bitcoin. So the equipment -- and also more imponderable, the equipment is better, it just goes down less. It -- it produces less heat, which lowers your air conditioning costs. It's just in every respect, much, much better equipment. And ultimately, the thrust of your question is, when do we get to the point where that's it. In terms of the chips, I think they've done everything they can with the algorithm. However, the yield on the chips, which means when you actually create a wafer and you break it into parts, how many -- how much usable circuitry is on the wafer. That number keeps expanding. That's what drives the price down. We should be able to go to a narrower amount of nanometers, and we should be cheaper. I don't believe that process is complete even though we've made a lot of progress. I think -- which is another reason why in the mining portfolio, we don't go all-in with the cash because we might have to replace equipment. Now the quid pro quo is, we don't have to replace -- we don't have to buy as much equipment as we bought formerly because terahash is somewhat cheaper. We can get the same processing power for lower price. Anyway, I don't think we're going to make a radical change in terms of productivity in the next several months. But beyond that, there might be productivity to be gained. I hope that answers that question. Okay. There's a question here about TPL. I wonder if the flared gas could be used to power generators, to run a mining operation rather than being wasted. Well, theoretically, anything is possible. Various people have thought of that. And at the moment, there are some firms talking to other firms, I don't think it's going on in any place that I'm involved in, but they're talking of buying flared gas. The problem in buying the flared gas is, a variety of pipelines have just opened in the last couple of months. They have Cactus II. You have the ECL pipeline. You have Gray Oak. That's 3. Taking me a lot of gas to the Gulf Coast. And I believe there are 3 others, that are in -- they're in the planning/execution stages. So the amount of throughput in terms of pipeline is only going to go up. It's going to block. So I don't know how many companies are going to be willing to just swap flare gas at 0 price. When you have the royalty, you have theoretically the right to ask for the gas in kind, you don't to take cash. So being clear, theoretically you could ask for the gas in kind. And you could turn it over to a miner, that could burn it and drive a turbine, theoretically possible. And I think on a limited basis, there are some people actually doing it. But then, think about it from a point of view of a producer, you're betting on how much crypto were, where is mining profitability is going to be. And they know gas is x per MCF, I shouldn't speak for all the people who produce natural gas in the State of Texas, but I think a lot of them are just going to want to take the price if they have a royalty and take the cash rather than do that. But who knows what's going to happen. It's very early in the process. Okay. Is it my opinion that we will continue to see most of the inflation in certain areas like services and health care and housing? In my opinion, no. In my opinion, I suspect there's going to be inflation, deflation in housing. And one of the reasons I suspect that is because it's become unaffordable. And after new tax law, the property taxes are no longer deductible on your federal income tax. So you live in a high-tax area -- I plan to live in high-tax area. I can tell you where I live. I can tell you unequivocally where I live, the prices of property are coming down. And they're not coming down by a small amount either, it's coming down by a lot. In health care, the inflation has to stop. It doesn't stop the much bigger financial problem than what's going to happen in capital markets. It's a enormous financial problem. And the technologies that are coming out are just unbelievable, they're truly mind-boggling. So for example, the other day, I learned about a company called IceCure. I'm not invested in anything, it's a private company. What's IceCure? IceCure is a company that actually freezes tumors. It actually uses -- it injects something with a biopsy needle, a substance, basically freezes a tumor. So it's -- the device I saw was -- looks like a biopsy needle to me. And it freezes a tumor on contact, which obviously kills it. And then through arthroscopic surgery, which is basically digging a little hole. They just take out the dead matter. Now of course, there's like any cancer removal, there's a 50% chance that the tumor is going to come back, but you can do the procedure again. So obviously, if you take that in isolation, that's a lot cheaper than the available therapies as an alternative. So I just see, technology is going to solve that problem. On the other hand, they're putting up a lot -- they're being the central banks who are putting up a lot of money. And generally speaking, that's inflationary. So I myself think, ultimately, it's going to be a wage-push inflation at the waste suppression policies to various governments. That's why we have a populism world, that's why there's so much unrest. The migration issue, which some people view as waste suppression issues. I'm not taking your side, I'm just trying to answer the question. So I'm neither a for nor against anything. I just think a lot of people are going to be against increasing labor force by the amount necessary to toll down wages. The unemployment rate is very low. It's likely to mean that the inflation will come before higher wages and basically eventually spread to a lot of other things. So I hope that answers that question. Okay. Here, we have a specific question, it is as follows. Note 4, Page 10, the financial statements refers to a $26 million single equity investment, equaling 20% of FRMO shareholders equity. Is this Texas Pacific Land Trust, TPL? And I mean, the short answer is yes. But I just want to turn to the page of the document in question. And the answer is yes. But let me tell you how this number is calculated. And let me give you some highlights. The number is calculated by taking all the various places where we have that company, let's say, Horizon Kinetics Hard Assets or Polestar Fund, or Multi-Disciplinary Fund, a Multi-Strategy Fund, et cetera, et cetera, et cetera, adding up the market value from comparing it to our shareholders' equity. However, there is some things to note about that. So that's the accounting treatment, that's what's required. But what it doesn't tell you is, when it says, that's our investment, it's true because it has to be mark-to-market. But in another sense, it's not our investment because we didn't invest anything remotely close to that amount of money to obtain this market value. So we -- in terms of what our capital commitment was, it was far, far less. Secondarily, even if I were to tell you, the exact dollar amount of our capital commitment, it still would be misleading. Why would it be misleading? There, to answer that question, maybe you get -- if you turn to the balance sheet to November 30 and in the liability side, you'll notice securities sold, not yet purchased, in other words, shorts. Proceeds, $14,942,000, roughly. Market value mark-to-market is $7,773,000. So -- and we've covered position before we -- at one time -- we don't have any option positions right now, but we used to have like big positions and options that we -- had expired, so we had to cover it or end it. And we had certain ETNs, and we were short. They reached the end of their life. So the ETN actually matured and we got the cash proceeds. So long and short, we made a lot of money, and we continue to make a lot of money in shorting. So to fund our investments, that's largely where it comes from, which is why the cash keeps growing. So if you want to look at it in -- this is certainly not an accounting appropriate way of looking at it, but just trying to analyze the way we're thinking, I think it's entirely appropriate. We are using our cash to sell short to catch the current ETFs. And when we get the margin release out of [ taxes ], we apply it to various investments. That's where investments come from. So that's why the cash can they [ come ]. So we're -- so yes, there -- it's a big number if you look at notes, but we did. But I really think it's not accurate to say we invested that money. We didn't invest that money. In our way of looking at it, we really -- we just got money for being short something, which we know what the outcome is, it's going to gradually decay. Now statistically, sometimes it goes against us. But if you take your typical security like that, about 40 weeks out of 52 in a year, you're going in the right direction, not the wrong direction. If it went our way every week, we couldn't sell it to anybody short. So obviously, what we're doing is we are taking a certain amount of mark-to-market risk in exchange for a highly likely, I don't want to say certain, but if you read the perspective of some of these things, maybe you reach another conclusion, to a highly likely rate of return, which is how we fund these things. So I think that's probably the better answer. Okay. Let's see. So here we have some questions about cryptocurrency, mining. Okay. What do you see as the breakeven mining rate? Now it's important to understand, I'll answer the question specifically in a second. But the breakeven mining rate is constantly changing. Constantly changing for a lot of factors. I'll just touch on a few of them. The hash rate, which is the aggregate computational rate in the whole system. Let's just say for the sake of argument, if the hash rate went down because people are turning off their servers, but we weren't turning off our servers and everything is equal, as they say in Latin, ceteris paribus. Our profitability will go up. On the other hand, if the hash rate goes up, so -- and -- but we didn't put more hash on. I mean we didn't buy more servers. In isolation, you could argue that our profitability is going down, but not necessarily so. Why not necessarily so? Because we're competing with more people, but Bitcoin, by the system is being produced faster because putting that [ hash power ] on, the block generation rate is not 10 minutes, it might be 8 minutes. So we're getting less Bitcoin proportionately that's being produced, if it was 8 minutes, 25% faster -- 20% faster in the case of 8 minutes. You have to weigh those 2. Anyway, at the moment, and this could change in 2 seconds. But at the moment, we're producing a Bitcoin for $3,500. Which I think it's pretty good. What do you think one needs to earn a 25% return over 3 to 5 years in mining? It's -- there are 3 variables. The first variable is you need a low electricity rate. And there are places right now, we're getting power at $0.022 a kilowatt. You can make it if you do that sort of thing. There are other arrangements that you can make, even if you had a higher cost of power. You need to be spot on your equipment and it goes down, you need to have your own repair facility. We have our own repair facility, so we can -- the trouble is -- or equipment is not in our repair facility. So if something goes down and it can't be fixed easily, we have to transport it to our repair facility that sometimes can be cumbersome. And you also need a state of the art cooling system, by a state of the art cooling system, I don't necessarily mean the air conditioning. So a state of the art cooling system basically is they run, whir, through vents. The vents have fans in them to draw in the hot air. In what's called the hot aisles. So basically what's done is, you take servers, you have the exhausts facing each other, as if you had 2 engines, 2 cars running, and the exhausts are facing each other, and that creates a chimney effect. And you have a vent, which with a fan draws in the hot air. And you basically run it through lukewarm water. The warm water absorbs the heat. It's the same principle as cooling a nuclear reactor. And you don't use air conditioning. So you need something like that. And in the facilities that we personally own, because we have our own facilities, we don't have that yet. Where we can figure out how to do it and do it at a reasonable cost, I don't know yet. I'd sure like to do it. We haven't done it yet. And that's basically what you need. If you can do all those things, you'll have a great rate of return. And like it is, everybody else -- we're learning. We've learned how to buy cheap equipment. We've learned how to parse our purchases in accordance with what the decay does -- the likely life of the equipment is, so we can replace at the lower cost per hash, and we can husband our cash. We got -- we now do our own repairs. We've come a long way. But we're all learning. Every day, we're learning. And every day, the industry is changing. There's another question here. Do you see yourselves committing more resources to mining? Short answer, yes. Okay. What is your price per kilowatt? I mentioned that before. I just want to stress, I think I said it before, but in case I didn't, in different regions in which we operate, we pay different electric rates. So why wouldn't we always go to the cheapest because, sometimes we're not operating the facility. Sometimes someone else is operating the facility, and they have state-of-art cooling system, they won't have in our facility, so it's worth it to pay more for power. Anyway, I think the highest rate we pay for power anywhere, I think, I may be wrong about this, I don't -- but I don't believe I am, because we're in a variety of places, I believe it's $0.059 per kilowatt is the highest. We have really great, it's really great facilities. Facilities are outstanding. So you save on other things when it gets too hot, your equipment goes down. You don't use this effectively and it can actually damage your equipment. You don't want that to happen for sure. Anyway, you have to weigh all these things. Okay. What mining equipment do you favor and why? Personally, and there are pros and cons to every piece of equipment and the prices are changing. So far, in my personal experience, the best equipment are the most recent iterations of the Whatsminer equipment. Whatsminer equipment is a relatively new entry into this space. We bought a few machines to test them, and they were fabulous. And the ensuing couple of months, we bought hundreds of them. They're really -- they're just spot on. They're just fabulous. And maybe that's what prompted Bitmain to improve the S17, the S17 is a big improvement over what the prior generation was, maybe the competition made it happen. At the moment, if you wanted me to vote for one thing, I would vote for Whatsminer. So it's low-cost operation and very little downtime as far as I can see. Yes, just to repeat that, Whatsminer, I'm not making up a name. That's actually a name of the company, Whatsminer. Because Thérèse looked at me, and she thought, I'm just making up a codename. That's actually a name of the company. You look for it, there's with Whatsminer. That's what they're called, anyway. Okay. What are the mining entities preparing for ahead of the May halvening? Okay. I think the mining entities are very well prepared. We've done a major league equipment turnaround. So basically, unless Bitcoin was a lot higher, old equipment, prior generation was pretty much going to be obsolete. And if -- even if Bitcoin goes up, unless it goes up a lot, I don't see making a lot of money with the older equipment. So what's needed to be done was, and this created a problem in the fourth quarter, it turned out to be not a problem at all. But we were prepared for it. We had to begin the equipment turnaround. There was a lot of work that had to be done. It's not just buying equipment, ordering it, you have to derack the old stuff. You cannibalize it for parts. You have to install the new stuff. There are certain programs, software, you can download on it, which actually makes them more profitable than the stated capacities of them. That has to be downloaded. It has to be tested. So a lot of stuff, just a lot of boxes, a lot of wires, and I think the team did an outstanding job. So that's basically -- I think we're -- I don't want to say we're 100% prepared. I think we're almost 100% prepared. There may be a few odds and ends that we haven't dealt with yet. But I think we're very well prepared for the halvening. Now the thing about the halvening, even though this is not the thrust of your question, if everything stays the same, let's say, Bitcoin stays the same, the block reward is actually being half of what it was. So you're getting half of the revenue that you were getting before. So in stasis, it's all going to go down. Your return is going down. It's just that right now, the equipment is so great and the return on invested capital -- which is not going to last, the return on invested capital is so outstanding. The issue is what's going to be the hash rate at the halvening point in May and beyond. So the question is, how much more hash rate can you get online between now and late May. If enough hash gets on, that will drive the price of Bitcoin up. A lot of the hash doesn't get on, the price of Bitcoin will go up. Right now, it's a battle. New equipment is being delivered every day, old equipment is being unplugged because it's wearing out. I don't see very many people replacing the old generation, at least we're not buying the old equipment. It was a point in time, a couple of years ago, we actually did buy used equipment, we're not buying now. Okay. There's a couple of questions on TPL. I'm going to read them, and then I'm going to answer them in generalized ways because some of the news is actually out, and some it I just can't say. Two questions. Are you able to work with the present trustees of TPL? Well, and secondarily, it's a related a question, will the corporate conversion happen? Well, for the latter, you might have observed the SEC filing on TPL. I believe it was Wednesday, yesterday. You can see so -- you can read it for yourselves, but the committee recommended the conversion, and you can see what's going on there. And I think that document answers the first question. Because -- I hope you could read that in the document. I thought everybody was working very well together. Or at least, it strikes me that's what a document should say because I think it reads very well. But I'll leave it to you to judge for yourself. Anyway, the information is out there. You can read it. And that's the way it is. Okay. Next question. Bitcoin peaked a little over 2 years ago. There is a lot of hope to halvening will increase the price. Do you agree with this? I touched on it a little bit, let's go into more detail. You can't separate the price of Bitcoin from the economics of producing Bitcoin. Largely, it's determined by the economics of producing Bitcoin. There are a number of vectors. So it's not like a stock where people say, "Oh, I'm enthusiastic about the prospects of XYZ corporation." And we buy it. I'm less enthusiastic. I sell it. There may be people who feel that way. But the price is -- it's a commodity. It's based on the economics. And you can look at the economics in a number of ways. One way to look at the economics is network effect. The network, which is a number of people who buy and sell, trade, pay with Bitcoin, it's like a telephone. So there is a formula, and it's called Metcalfe's law, I'll read you the formula. The formula is N times N minus 1 divided by 2. So what is N? N is a number of people or players or participants if you prefer in the marketplace. Let's say, you're Alexander Graham Bell, and you invented the telephone. Now you made a telephone. What are you going to do with it, you have one telephone? You can't call anyone and no one can call you, so the value is 0. So the net formula N times N minus 1 divided by 2, you'll actually get a 0. Because N is 1 when and you have 1. N minus 1, 1 minus 1 is 0. 0 times 1 is 0, divided by 2 is still 0. So it's 0. So you need somebody to talk to. Now there's 2 people. You build a second phone, and you give it to someone. And there's 2. 2 times 2 minus 1 or N minus 1 is 1. 2 x 1 is 2, divided by 2 is 1. And you're on to the value 1. Now a third person gets a phone and it's 3. We have 3 as N. 3 minus 1 is 2, okay? 3 times 2 is 6, divided by 2 is 3. You've gone from a value -- a net cap number of 1, net cap number of 3. Now we'd be here a pretty long time if I kept increasing this by an increment of 1 and going all the way up to 10, but if you had pencil and paper or if you prefer writing a computer program to do this, we can bring it up to 10, 20, 30. What you're going to see is hyperbola, basically means a hockey stick up. So when you get that graph, however high you decided to go, and you lay it over a Bitcoin chart, you get more or less a chart. Now because all of the improvements in the equipment in terms of the growth in the network, there are a lot people who bought equipment, and they had no idea preparing for a next generation, the equipment will obsolete very rapidly. They basically were injured greatly by what happened and they have no choice but to shut their equipment down. So you have this vector of the increasing hash rate and the decrease in the hash rate comes from people who unplug their machines because they're not prepared for the future. You can see it very clearly in Litecoin if you look at the graph of Litecoin hash rate. Litecoin hash rate came down after the halvening or actually even slightly before the halvening, now it's on the rise again. So there's new-generation equipment to Litecoin, it's arriving and the new equipment is -- the old equipment has gone away, new equipment is replacing it. So these things do take time. Now you might ask me or I'll ask myself in your absence, what -- how do these vectors actually translate into the price? Okay. I get why that might be true, how does it translate into price. Okay. Think about, you have -- if you want a Bitcoin, you can get it 1 of 2 ways. You can buy it or you can make it. So if it was cheaper to buy it than to make it, nobody's going to validate the system. System wouldn't operate. So if it cost $3,500 to buy a Bitcoin, $8,500 to make a Bitcoin, who in their right mind is going to validate. Nobody's going to do that, so basically, it's got to be cheaper or this system doesn't work. So okay, let's say, it's true. You make Bitcoin cheaper than to buy Bitcoin. You had 2 choices, even if you're making Bitcoin. You can say I'm making Bitcoin and I'm going to keep the Bitcoin. You could say I'm making Bitcoin, I'm going to sell the Bitcoin, and it's so profitable to sell the Bitcoin, I'll sell the Bitcoin because I make at $3,500, I sell at bit much higher price. And I'll use that money. I'll buy more machines. And if I buy more machines, the network capacity goes up. And the hash rate goes up. And that makes it actually more expensive to produce Bitcoin because there's more competition for getting the block reward, that drives the price up. So when I talked about Metcalfe's law and the network, the hash rate, the hash rate, the combination of power, is just another way of looking at number of participants. So more participants, the more hash power is going to be. Just another way of doing it because the hash rates measured [ extra ] hash, are so huge that when you use scientific notation and you say something like X -- however many X the hash is in Bitcoin right now, X times like 127 times 10^18, you give a number like that. People, generally speaking, it's hard to visualize numbers I think because we're not trained to think in scientific notation. So we're trying to think in whole integers. So therefore, I just use an analogy, but really, it's hash rates. Okay. So what happens is the very profitability in a way has seeds of lowering the profitability. That's why the Bitcoin main profitability waxes and wanes. Right now, we're in the waxing mode. Right now, it's unbelievably profitable. As I said, I expect with the halvening, it's going to be less profitable, but we'll see what happens when it comes. However, that can be mitigated if enough people put enough of their profits and bought more machines and they got delivered in time, the hash rate might go up a lot. So in prior iterations, when the Bitcoin go up and the hash rate went up tremendously because of new-generations of machines. That might happen right now. I personally think that's a good chance of happening, but it's not a guarantee, it's not a prediction because we can't forecast how much the production capacity is. We don't know exactly, even if the orders are going in. Why don't we know that? Here's another piece of information because the equipment, the chips were made in Taiwan. The assembly was in People's Republic of China. So you make the chips, and they get sent to the People's Republic of China. What's the problem? The problem is there's a 25% tariff on electric goods to come to China. And there's no exceptions. Even if you have the goods delivered to Canada, and they've been sitting there for a year or 2, and you even bought them prior to the imposition of tariff, if you try to bring them across the border, the United States customs will put a 25% tariff on the value, now the value might be a lot less than you paid because you can claim [ back ] on tax code, and you appreciate the asset. But whatever that number is, there's a 25% tariff on it. So no one liked that and no one wanted to buy equipment and pay a 25% tariff. It really hurts the profitability. So what happened, and this is why cryptocurrency had a problem that equipment always burns out, and nobody was able to easily replace it. You'll see over a period of time the hash rate is actually going down. That's one of the factors. So the production was moved to Malaysia where there's no tariff. But in new facilities, if new workers had to be trained, what's the defect rate? How productive are they going to be relative to the Chinese people, those are all the things that are questionable right now. So anyway, you get the idea. There's a lot of factors in it. Anyway, I think maybe you have more than you wish to even get on the idea of mining and what drives the price and that sort of thing. But basically, that's what it is. It's the economics. Okay. Another question related to crypto is, do I see progress in Bitcoin to be used as store value or in transactions. Yes, I do. There's some minor progress in the form of backed Bakkt, and which is physical futures delivery. So one of the things you need is, if a merchant is going to take it unless they want to halt, they need to get rid of it. So if somebody has to take it, they need to be physical delivery mechanism, and we have it. I believe there are more ways to do physical. That's not the ultimate iteration anyway. But -- so I believe there's going to be improvement in that. Right now, it's in a continental exchange, which own Bakkt. The next thing is, the people, in general, are going to have it, they don't want to deal -- or at least, it's my opinion, they don't want to deal with private queues, the average person. Some people maybe do, but the average person doesn't want to do it. So you're going to have to have custody. So custody is being rolled out right now. And there are a number of custodians you could use to Bakkt warehouse. As a custodian, Fidelity has it. Coinbase, I believe, has custody now, institutional-grade custody. So it's coming. The other thing that people need, that's coming, and I think it's well underway. The other thing we need is the average person to transact in Bitcoin or any cryptocurrency for that matter. They basically need an app, kind of like your credit card, your debit card or Google Wallet or Apple Pay or something of that level. We don't have it yet. However, it's good to remind that Starbucks and Microsoft, are partners, in Bakkt. And we give them the stand. Who knows if this is accurate or not, but we give them the stand that by the halving or the halvening, as they call it, by the halvening in spring at that time, it is going to be easily -- easy-to-use app available through Starbucks, you can walk in and buy anything Starbucks has to offer. And from Starbucks point of view, it's not a big risk. At the end of the day, it's just a cup of coffee. So if it doesn't work, it doesn't work. You're not risking a lot. And I think it has prospects of working. So if you can -- if you make it as ubiquitous, if you walk into Starbucks and easily in the same way you use your various payment apps, and transacted Bitcoin, there's enormous advantage for any retailer, whatever scope, to get people away from credit cards, debit cards because it costs them a lot of money. It's a 2% to 3%, depending on the retailer fee. So if you're a low-margin business, let's say, your Amazon, the whole profit margin is not even 2%. Walmart, maybe, has a 2% profit margin. But theoretically, Walmart -- and I'm not saying Walmart's going to Bitcoin, but if Walmart did, and these apps were available, you're talking they're getting 2% of margin or 4% of margin. That's serious money. So there's enormous incentive. Okay. So -- okay. Would it be possible to give information on the situation of the SPIKES Futures on MGEX? It would be possible if I had the information. So this is what I know. The -- there is a jurisdictional dispute between the CFTC and the SEC regarding SPIKES. The nature of the jurisdictional dispute, it's not obvious, the written materials. So I'll try to explain it. It's a legal question. So basically both SPIKES and VIX, they're both these volatility indexes, they are indexes. There's an element of law, at least in this country, which has to do with, oh, you're a broad-based index? Or you're not a broad-based index. And the line of demarcation is 10 securities. So if you are facing the VIX on the S&P future, the S&P future is considered to be an index of 500 securities on which they might track X number of options on the S&P future. And those options, not the S&P future itself, that's what goes in creating the VIX. Now the SPIKES uses as its base the S&P SPY, S-P-Y, is actually a security. So it's possible to take a legal position that, well, your index, even though it's based on a variety of options, but the underlier is 1 stock not a future composed of 500 stocks, 500 that goes -- it's just a future -- it's not a future, it's actually a single security, and therefore, if you're a single security and not a broad-based index, you're not a broad-based index, you are regulated by the SEC. Basically, it's the best I can explain the legalities of it. The only way around it is you've got to get somebody to give you permission to operate in a manner, slightly different than the common practice. To be fair, no one had ever envisaged that this issue would ever come up. Today, you have it, that's legality of it. You have 2 different agencies, and we have a lot of lawyers, and they're going to have to -- they're all collectively, a lot smarter than I am, and I hope that day will come to some reasonable meetings of the mind, whatever that is, I have great respect for all of them. And they might be having a conversation right this second, for all I know. But I'm not going to be able to shed more light on that because they got to figure out how to do this. And you can understand a regulator's concern that where it gets regulated, it sounds like such a picayune point. It's not a picayune point to be fair to them because if you set a precedent, it could affect regulations for all sorts of things that have yet to exist. So really, even though, who likes these issues to come up, no one, but you can see it from their point of view. So it's got to be some resolution. And I imagine there will be. What it is? I don't know yet because I don't think it's known. So we could tell you, but I really don't know. And I didn't go to law school. And I'm not a member of bar, and if I was, this wouldn't probably be my specialty, securities law. So I'm not the one to figure out what the solution is. But I'm sure a lot of talented goodwill people, they need to figure it out, and they'll have a solution for it. So I hope that answers the question. Okay. Does Horizon Kinetics pay out a regular dividend? If so, what dividends do you pay out at Horizon to show up line item, dividends, interest income, net and income statement. Yes. Horizon Kinetics does pay regular dividends. Generally speaking, Horizon Kinetics pays quarterly. And because Horizon Kinetics is partially owned by FRMO, that number is in dividends and interest income. So with net, that's where that number would be. Okay. Let's see. Do I have any opinion on the uranium ministry or Cameco Corporation? I know you like to research on your favorite indices and this certainly qualifies. Yes, it does. The basic -- there are 2 basic problems with Cameco. It's certainly a cheap stock. I myself have been tempted over the years by it. Although, I haven't done it yet. Maybe, one day, I will. There's just a worldwide oversupply of uranium. And there's a worldwide oversupply of uranium because the nuclear power industry is just not expanding, which you could argue because it's 0 CO2 emissions. You could argue that if you're really worried about CO2 emissions, and the effect on the climate, you want to expand nuclear power. But a couple of things about that. Number one, it takes a very long time to permit and then construct a nuclear power reactor. And secondly, the people who are worried about climate change, it's worthwhile recalling with all due respect to them, they spent 40 years trying to shut down nuclear reactors. Now there's some [ caution ] that we need more nuclear reactors. Well, there's 40 years of legal precedent and nuclear regulatory commission rulings and all sorts of things that make it very, very difficult to life of the reactor. There are state rules. There is federal rules. It is usually court filings. And then after 40 years of talking about how dangerous they are, you may remember a movie, The China Syndrome. The average person thinks a nuclear reactor is just a ticking nuclear bomb that will go up. And actually, from a physics point of view, even if the containment vessel of a nuclear reactor were actually to crack and the moderator, which a nuclear reactor is used in the western world, is water. If it leaked out, a lot of people would think it would leak out, the reactor would overheat, and you get a nuclear explosion, and you would not. It's a physical impossibility. The reason it's a physical impossibility is because the water is -- when we say moderator, we think of water as a moderator, like in a conventional boiler or an engine. Like liquid in a radiator, like, let's say, ethylene glycol in your radiator is a moderator to cool down your engine. But it will cool down the engine in a nuclear reactor. What it does is, it slows the -- it slows the progress of neutrons. Why do you want to slow it? Because there are molecules moving back and forth with Brownian motion. And if you slow the neutrons they're more likely to strike a U-235 molecule and split it. So to create a chain reaction you have to slow -- you should free neutrons. So when the water leaks out -- water basically impedes the speed. When the water leaks out, neutrons speed up. You don't get a chain reaction, and the reactor automatically shuts down. That's what actually happens. So you might recall, the Fukushima disaster, as I said, water can leak out. That's problematic. but if you go and get in that after this call -- hopefully, you won't do it until the call actually ended, but if you do it after the call, and you look at the articles at a time, they basically were saying that they think there's going to be another nuclear bomb going off in Japan in the form of Fukushima reactor, and the Japanese government tried mightily to convince the various people, interested parties that, that was a physical impossibility. And after 3 to 4 or 5 days, enough people who had the scientific acumen to tell the reporters that there's no possibility of blowing up. Whatever might happen, leaked water getting into a river or a creek could be a problem. But it's containable, and it's limited. Anyway, it's not going to blow up. So once they realized it wasn't going to blow up. The interest on the story was a lot less. So anyway, take from it that what you want. And hopefully, if you're interested, you'll look at those articles. Anyway, maybe it's more about nuclear power than you want to know. Okay. Can I please give us an update on the state of crypto mining? And you have increased your investment for FRMO given your positive outlook on the cryptocurrency -- well, yes, we have increased our mining investment. We would have increased it more were it not to the fact that until very, very recently, very recently means maybe 10 days ago, if you ordered equipment, we had to order equipment in September. And we knew we had no chance of getting delivery until Thanksgiving. We didn't get delivery in Thanksgiving, we got -- we started getting delivery. And I say started, not full delivery, a couple of days before Christmas. And then when you get delivery, as I said, you need to test it. You need to download software. You need to derack the old equipment. You need to rack the new equipment. You need to arrange it in hot aisles and cold aisles. There's a lot of work involved in it. Obviously, you have to test it and make sure it actually works. You can get damaged equipment, which does happen sometimes. Although, it didn't seem to happen in this recent iteration. So it takes a number of days to actually start getting production in line. So it took us a long time. Now you get the equipment faster. I'm going to just show the front of it. I'm going on the Internet because I can do things and because I have the thing right here. I'm just going to look it up and see what it would we take to get delivery. Like if I ordered today, and looked at something and if I did today, how long it would take me to get delivery. Now just because they say this doesn't mean it's true, but I'm going to just look at something here. What is the most recent deal? Okay. An S17, right, and today is January 23, to give you an idea, an S17, which I think of the Bitmain equipment is the best you could buy. That's the machine -- if I were buying today, that's the machine I would buy. Today is January 23. It said here, the shipping date is March 1 to March 10 in that range, which really means March 10. Now it's coming from Malaysia, so it could take -- it's going to be on a ship. It's going to take 2 weeks to 3 weeks to get to you. So it means if you order equipment today, at least the S17, which is what you want, you might -- it might be online in April, early April. And I say might because these aren't hard and fast numbers, just giving you an idea. That's the state of mining. Now ultimately, the equipment's fabulous. Even the S17 is fabulous. Even after the halvening -- and if nothing happens to improve the Bitcoin price, even after the halvening, it's still going to be fabulous. That's how productive the thing is. So the equipment is going to arrive, and it's going to get installed. The question is how fast and when. It all pertains to what I said earlier about the move in production to Malaysia. And in fact, in Malaysia, if you think that they were putting it on a ship. It goes from Malaysia to Singapore on a ship. So it might be a couple of days of truck in Malaysia. It goes across the Causeway to Singapore. They got to load it on the ship and is -- and it's containers, and it's not the only thing on the ship. And then the ship isn't leaving until the ship is fully laden, so they might be shipping other things. Who knows what. And your server is going nowhere until the ship is fully laden, then it's going to sail from, I guess, it's the Malacca Strait. All the way to Los Angeles port. Then they take it -- then they unload the ship, and it gets on a truck, and it goes somewhere in North America, depending on where it is. Like I would tell you where our facilities are, but it's considered to be horrible practice to do that because we got a lot of expensive stuff there, and we don't want anybody knowing where it is, we have to be cognitive of security. There are -- and if you were to see, in some the cases we have, what the security arrangements are, they're very tight. And we're all told, don't tell anybody where it is. Just say, North America, which is a very big place. So I'll say in North America. It's a very big place, and that's where our stuff is, someplace in North America. And I'm not going to be more specific than that. So I hope that gives you an idea of what's going on crypto mining, and we are going to increase our investment. And hopefully, we can do it soon. But those are the limiting factories, which is obviously totally out of our control. But we have to live with that, and we do. So that concludes the questions. And that concludes the remarks, and it only remains for me to thank you so much for all the questions. I really thought the questions were just fabulous this time. Really fabulous. I enjoyed answering them. And if I missed anything or you want more information, please don't hesitate to contact us. We'll give you more information if you so desire it. And of course, we're going to reprise this in about 3 months, and look forward to talking to you and hopefully enlightening you. Thank you so much, and good evening.

Thank you, ladies and gentlemen. This concludes today's presentation. You may now disconnect.