Announcer: Wall Street Unplugged looks beyond the regular headlines heard on mainstream financial media to bring you unscripted interviews and breaking commentary direct from Wall Street right to you on main street.

Frank Curzio: What’s going on out there? It’s February 3rd. I’m Frank Curzio, host of the Wall Street Unplugged podcast, where I break the headlines and tell you what’s really moving these markets. So, it hurts from saying “and” now. With so many podcasts a week, I feel like I’m saying it all the time.

Frank Curzio: Anyway, it’s interview Thursday. I’ve got a great one set up for you right now, one of your favorites. It’s Frank Holmes. He comes on every quarter or so, but he wanted to come on because he’s got some great, great news about a new ETF he’s launching, and it’s pretty exciting. Seriously, I don’t say it often with ETFs, but it’s even more exciting now after UPS’ incredible numbers. Definitely very, very interesting. Seriously, I’ve never really said that about an ETF, it’s exciting times.

Frank Curzio: But Frank is the CEO and CIO of US Global Investors, also executive chairman of HIVE Technologies, one of the early Bitcoin miners. So, he is going to break down Bitcoin where the price is headed, it’s been all over the place lately… How HIVE is positioned to benefit more than its competitors in this industry when it comes to mining Bitcoin, Ethereum. And he is going to break down that new ETF his company just launched. Seriously, just launched this week. And let’s get to that interview right now.

Frank Curzio: Frank Holmes, thanks so much for joining us again on Wall Street Unplugged.

Frank Holmes: Happy New Year, Frank.

Frank Curzio: Happy New Year to you. I don’t know if it’s so happy for lots of investors. We’ve seen the market come down a lot, and I wanted to talk to you about that, because you just launched an amazing product, we’ll get to it in a minute. New York Stock Exchange, a new ETF, which is really exciting. And I’d like to get to crypto with you as well.

Frank Curzio: But before we do that, let’s talk about the overall markets here, because you’re data driven, you look at algos, you use algos for your research and things like that. What are you seeing in this market, where obviously we saw a fundamental change, right? We saw the Fed reverse course, pretty surprisingly, in November, but we know that risk, right? We’re looking at four rate hikes, we know that they’re going to stop buying bonds, so tapering and things like that. But just to see the market keep dragging on due to that risk and where we went down to, do you think it’s overdone or hey, more leverage has to come out this market and maybe a little worried here?

Frank Holmes: I think that it’s pretty well done its course at this stage. The rates, will they go up? They’re going to go up gradually, they say. Frank, it doesn’t matter. Negative real interest rates are so big, it’s just epic. Used cars are up 25%. Inflation… I did a piece in 2020 about fake CPI, that if you use the algorithm in 1980, inflation was running at 9%. That same algorithm if run today, inflation is at 14%. I know that my insurance for my house, my D&O insurance, I know all these numbers are pop 23%, healthcare insurance for my employees jumped 25%. So, there is a lot of inflation in the system, and the only way to get that is to really get real interest rates positive. If that happens, we’re talking about eight, 9% money rate yields, that would really crush the market. And in a year for Congress, a gubernatorial election, I don’t think all of that’s actually going to happen.

Frank Holmes: I think it’s a lot of trying to talk down the markets. Because the Fed balance sheet is not shrinking like they said it was going to be. And even if you can borrow at a mortgage rate of 3%, it’s still cheap money. So, I think that people are still able to borrow, and I think that’s a smarter way.

Frank Holmes: The stock market is different. It’s discounting a recession six months out, and that’s basically how it’s functioning. And I think the other concern was the crackdown of how China operates, but I think all of a sudden, now the panic of real estate crisis is in, COVID crisis in China, the worse is behind us. And now, they’re just going to stimulate, they dropped interest rates. That’s interesting. They rose interest rates, and now we’re looking to raise them, and they’re dropping them. And that gives me a lot of comfort for commodity demand, which also, cargo, relates to why we launched SEA.

Frank Curzio: All right, let’s get it into that, okay? Because I was going to ask you a little bit more about the Fed, but I want to ask you about SEA, since it’s relative to this. We saw Tesla come out with earnings last week, and they were saying supply constraints. First time they said that. And yet, you see all these EVs that are coming out, I get reports in this and you get reports on this, I get pretty much real-time reports, seeing how they still… Major products has gotten easier, but what made you launch this? Because it seems like, with this new ETF, Sky Cargo ETF, and I’ll let you talk about it a little bit, cargo ships represent about 70% of the ETF, air freight companies represent about roughly 30%. With everything going on, supply chain issues, people wanting more information, how did you come about actually launching this? Because I think the timing’s absolutely perfect.

Frank Holmes: Well, it reminds me of JETS. Why I launched JETS was, I had to get in the ETF business, and I had noticed in 2013, my options for flying globally was shrinking, and the price of my tickets was doubling. And I said, “Well, there’s got to be… This is a booming business.” And when I delved into it, there was no ETF in the airlines industry, and airlines, as all the subsets to it from Boeing, et cetera, it employs something like 8% of the population, so it has a big GDP factor. And it’s also how they correlated to overall economic activity. So, that led me to create my first ETF, JETS, and I had a quant approach to it. And then, it along came GOAU, it was the same thing for GO, it was a quant approach to beat the GDX and GDXJ, and GOAU has done that, so I’m happy that that discipline has worked.

Frank Holmes: SEA is very similar because I really noticed, with HIVE, being the interim CEO there, I’m buying all this equipment and moving stuff between China and Sweden, and Iceland, and equipment. I saw those freight rates going up every month. Every month. They doubled, they went up triple, they quadrupled. And I remember when we had the crisis of COVID in April of 2020, the busiest airport in the world was Alaska. Why was that? Because it was moving cargo, and it was cargo for masks and gloves. So, that’s what has helped me to dig into this. What are the factors that mean that this is a sustainable business now? Shipping is going to continue to grow.

Frank Holmes: And there’s a confluence of several factors, Frank. One is this climate chain initiative, a lot of these rules coming out of the UN push that a lot of the big tanks, if they had crude with sulfur or ugly crude, they like to call it, from Venezuela, they could not use ships to move cargo around the world. They had to use different, more expensive, fuel, and they couldn’t go into seaports. Well, as that time came on, those ships were just coming out of COVID and a lot of ships cannot move equipment. So now, you have a shrinking supply of ships that were able to move around the world, but you had all this pent up demand. And that’s what led me to saying, you know what? This is sustainable. The green movement globally, climate initiatives globally, coupled with when you shut down China, and China consumes 50% of all the commodities in the world, well, that is a big impact on iron ore, and it has a big impact on a copper prices, et cetera.

Frank Holmes: So, we had these supply side restrictions, then we have the pent up demand coming out of North America. It becomes this perfect storm. And there was no really true global cargo ETF. So, 80% of all global cargo is shipped by ships, and the other 20% is airlines. What we found in our modeling is at this sweet spot, looking at down years, up years, up cycles, down cycles, was this 30/70 split. Cargo airlines only, to give you a classic shipping, high GPU chips by airplanes, it’s up tenfold in a year. Tenfold. And that’s definitely a big inflationary impact, so we think that this is going to continue to be inflationary.

Frank Holmes: And we all also know that technology of Asia and other places around the world, they’ve spent much more money on robotics than America has. So, when you ship over to the US and LA, the process of taking off the containers and dropping them onto trains and dropping them onto trucks, that process has many more human beings involved, whereas in Asia and other big ports in Europe, there’s much more robotics involved. So, that’s just basically saying we’re going to live with these airlines and these cargo ships with pricing power for the next three to five years. And that gives us a sector cycle in an asset class.

Frank Curzio: So, one of the things I like about this, Frank, and I’ll bring it back up soon, I was looking at the holdings, is even when you go to top 10, top 15, you have ZIM Integrated, Orient Overseas… A lot of people aren’t going to hear… I mean, Maersk of course, but if you’re looking, a lot of these are international companies. I think Matson’s one of the few. But it provides an opportunity where there’s a lot of great names on this list that maybe a lot of people didn’t hear of, but they’re very, very large, and they’re not easy to buy as individual stocks because they trade on other exchanges. I mean, that’s got to be a huge positive, right? Just getting that kind of exposure.

Frank Holmes: It’s huge.

Frank Curzio: I like that, personally, where it’s not just FedEx, UPS, and a couple of the big guys in here that anyone can buy individually.

Frank Holmes: And the cost. It’s very expensive for an American to go and try to buy a South Korean company or a Taiwanese shipping company. It’s very, very expensive. So, here you can do it all for 65 bps. I mean, it’s nothing.

Frank Curzio: Yeah, it’s cool. So getting back to the hole this year, and I love this part. I don’t know if so many listeners like it, I love it because I love your methodology behind this. What is some of the methodology for some of these stocks making it to your portfolio, because I know you, and maybe this is the first time they’re listening to you, how you’ve been doing this for five years.

Frank Holmes: So, you can see that we want have a quant approach that who’s the most liquid names, that was an important aspect. And also, we went with the least expensive enterprise value, and who had torquing revenue growth, revenue momentum. It’s interesting to see that one of the largest Asian shipping companies increased their base. They gave bonuses of 30 fold. Not 3%, not 30%, 30 fold. So, they make sure the workers are there and showing up and the big bonuses. You can only do that if you’re very, very profitable. And so, I think that these are all the signs.

Frank Holmes: And the last thing I want to share with the cost, there is an ETF or ETN that basically does forward shipping costs. It’s a derivative of a derivative. And if you want to buy something like that, you’re not buying the real underlying business. You’re paying a hundred and… I think it’s 70 basis points. It’s very expensive. But it shows you the cargo for shipping running up, running down. This is much more of a, to me, a stable business, because it does capture what we cover in our global resources research every week, the pulse of demand for commodities globally and the shipment of final products. If you want to have an arm around growing PMI or shrinking PMI, this particular product allows you to deal with the purchasing manufacturers’ index and future growth. And the supply side restrictions of, we’re seeing now in copper, are going to continue to grow, and so the shipment of copper and the pricing of that is going to grow with the green movement. So, I think this is a very interesting, unique industry that’s really embracing a lower carbon footprint.

Frank Curzio: Yeah. I love that. I love that. And guys, just, if you want to take a look at it too, it’s called Sky Cargo ETF from US Global. SEA is the symbol here. Congratulations on that. And I know, because it’s such a big deal, because the last time you launched an ETF GO GOLD a few years ago and you invited me, and I was able to go up there and ring the bell with you. It’s still one of the greatest times, being at the New York Stock Exchange, but-

Frank Holmes: We could do it with no masks.

Frank Curzio: What was that? What did you say?

Frank Holmes: We did not need a mask.

Frank Curzio: Yeah. Back then we didn’t need a mask. I know. I know. And it’s crazy. Let’s look at gold, because… I’m going to ask you a simple question. Why isn’t gold higher? Because we have negative real interest rates. I mean, we’ve been telling… That was the thesis for 20, 30, 40 years, inflation uncertainty. It seems like it’s checking off every single box, and I think people are surprised that we’re not seeing $2,500, $2,200. And then, we went to $1,800 and pushing below there. But I think people think it should be a lot higher. Why is that? Is it Bitcoin taking away their thunder? But even at these conditions, they don’t get better than this for gold.

Frank Holmes: Here’s the interesting part. I saw all these reports coming out that gold was down for the year, but if you looked at the average price, gold was up $80. So, if you’re a mining company, all you care about is your average sale, not two points, two dates, that’s all. The beginning of the year, the end of the year, it was off 4%, and they defined the whole gold market as a bad investment on that point. And if I go back the past 21 years, gold has been up 87% of the time. The average price has been up 87% of the time. The gold mining stocks, they follow the price of gold and they were down for the year. And that was well, another shocker, because 61% of them, in our quant approach, have free cash flow.

Frank Holmes: And so, I think that A, the market is only looking at two price tags. They have great revenue, they’re very profitable, and they’re much cheaper than the S&P 500. So, what does it drive? And there’s a whole theory that there’s this conspiracy with the G7 countries, and I was always a big counter of that. And compression, and oppression, and suppression. It sounds like the social politics, but there were charges made and convicted, JP Morgan, Deutsche Bank traders of spoofing gold markets. And JP Morgan recently wrote a big check to cover all those costs. So, maybe there’s some rational reason. The G7 countries were able to collaborate like a cartel and come up with a flat tax in all corporations. That’s unheard of. Companies always went from one state to the other because of better taxes. We went from one country to the next over better taxes. The whole boom of car manufacturing parts in Mexico and then NAFTA agreement is because labor was less expensive. So, you traded off taxes and labor, and it was cheaper to do the assembly in the US, but to do the manufacturing parts there.

Frank Holmes: So, all of a sudden that’s been taken away. And so, is there collusion amongst the Janet Yellens of the G7 countries? Which includes Japan, which includes the EU. And that’s the rhetoric you hear from the hardcore silver and gold bugs. And when you add up all these parts, it could be. All I know is that when it moves, it’s going to be mega, because these gold mining companies are making money, but we do have peak gold supply. So, the only way for them to grow is to start doing the Pac-Man with each other.

Frank Holmes: And I spoke at the Institutional Gold Conference for just CEOs and portfolio managers, and I advocated to get younger investors into their stocks, and if you have free cashflow stop selling your gold, hold it, be a believer. Because a lot of the millennial investors want to go to things that they believe that you believe. They don’t want to trust you, Frank, unless you also are eating your same food you’re trying to sell them.

Frank Curzio: Good point.

Frank Holmes: And so, the crypto companies, the bulk of them hold their own coins. And we used to have IAMGOLD and Goldcorp, they used to, back in the ’90s, hold gold, because they had high grade, they had big free cash flow, Rob McEwen was biggest of that, and their stocks went to the highest relative premiums. So, I think that’s probably a lesson for the gold stocks, but I think they’re really undervalued, and I think gold, on a relative basis, is one of those screaming assets, because we saw every alternative asset class except for gold go up on those two points, but the average price did go up.

Frank Curzio: Yeah. And when it comes to those large cap gold stocks, even with the selloff and a lot of rustle and crazy names, this is probably the cheapest sector I’ve ever seen, producer wise. Not juniors, but these guys are trading at some of their lowest valuations, growing faster than they’ve ever grown, much faster than S&P 500 is trading, much cheaper than S&P 500, generating tons of free cash flow, spitting out dividends. I mean, they’re like perfect position right here. Just to see that you’re not… I guess, being patient and it could take a year or two, whatever it does as gold prices go higher. But it is interesting just to see that it’s just a sector that I think people look at and like, “Oh, I don’t want to go near gold.” And I’m like, man, this is… Forget about if it’s gold, if you took the word off of it, off of Newmont, change its name and just showed you the financials and the figures, people will buy the crap out of it because it’s growing so fast. Dividend paying, perfect for this market. And then, they find out it’s a gold company, they’re like, “Eh, I don’t want it.”

Frank Curzio: So like you said, I think more excitement and… That’s a really good idea, holding, right? I mean, that’s a big point where, even when Bitcoin comes down, that’s what you see all over Twitter, “Hey, holding, holding.” Yeah.

Frank Holmes: Right. I wore, coming back from Europe earlier this year, going to see our facilities, my Ethereum shirt. And I get the customs agent talking to me about crypto and what he likes and doesn’t. And now, I wear gold, buy gold, or I love gold, forget it, they ignore you, which is really interesting. So, I have this… I’m going to send you a hoodie. And it says, “Hodl Gold.” And I went to the Spurs basketball game. Now, I never get young people giving me a high five, and I go up the stairs with my Hodl Gold, and kids don’t see gold, they just see Hodl, and they give me a high five. I’m not a ball player.

Frank Holmes: It’s anecdotal, but it does tell you something that’s going on in that sort of new world. And the crypto right now is going through its own, sort of like 2018, where the EU and the G7, once again, with the Bank of International Settlements is attacking the crypto industry. And you know what I think? There’s just so much fun on how much electricity they use, its now been well documented. It’s really not the truth. China was the biggest of all crypto mining in Bitcoin and they were using coal. That’s all gone. So, Texas has been a big beneficiary, and they’re using solar energy, wind energy, natural gas.

Frank Holmes: So, I see this sort of sequence that the Senate’s examining, investigating, the Department of Energy is, the SEC is… All the government agencies are piling on this industry, and they’re doing the same thing in the EU. Today, we got news that the overreaching of… The securities regulator is saying crypto money should be illegal. But a lot of it’s private, it’s not their business. But it’s just interesting that this happened in 2018, and sort of came in a swarm, like hornets coming in.

Frank Holmes: But what they really miss, and I think you get, and a lot of your listeners, is the gaming industry. What I have really learned about Ethereum mining is that the ecosystem is so big because you have all these gamers around the world, generation X, Y, and Z, and millennials, it’s a $200 billion business. They use their GPU chips at night, they go to bed, and they’re mining Ethereum. One data point came up that there’s 20 million of them. I actually suspect there’s more, and the reason for that is that I was looking at the number of gamers in the world, it’s going to hit 2 billion in five years from now, of the seven billion.

Frank Holmes: The Chinese came back and said kids can only game for three hours a week with centralized draconian policies, but they all need their GPU chips to do this. So, what they do is they go mine in the cloud, and they can get one Ethereum a year. Last year, it was averaging close to $4,000. I had, as a kid, a paper route to make that extra money. These kids don’t have paper routes. That’s an old business. They’re all mining. And that is a big part of what’s happening around the world. Why is crypto so big in all these places, is because people my age don’t get it, that a lot of them are kids that were gamers, computer designers, architects, et cetera, that are mining as a hobby for extra cash.

Frank Curzio: Yeah, it is incredible. Now, they play video games and the pay for play bottle and stuff in the Philippines. I don’t know if you saw those statistics where kids are playing all day, because they’re earning more money playing those games than they are working, doing other jobs. But you’re one of the few people-

Frank Holmes: If you’re really good though… But Frank, if you’re a really good gamer, and you’re into sports, and you’re a competitive guy, and you’re really good at this stuff, you get rewarded in digital money in that software and that gaming… And you don’t have to write a check to be upgraded all the time. So, it does create a sort of innovation and competition at another level that is the NCAA sport gaming. I mean, it’s really interesting to… We hear these things and see it, but all of a sudden, now we have this new web 3.0 coming out, and the metaverse, I think they said there’s 18,000 coders working on this. Ethereum has over 33,000 around the world that are writing code, based on the Ethereum network, they’re writing for DeFi, for NFTs, for your favorite baseball card, however you want to have this.

Frank Holmes: So, it’s really moving quickly, and I think the regulatory world is trying to catch up with their own digital money, but you got to remember that these generation X, Y, and Z and millennials will have a vote, and they’re going to vote for the politicians that are going to be supporting what they like to do.

Frank Curzio: I was going to say that you’re one of the few people that I know that will talk about gold, and within the same conversation, five minutes later, talk about Defi and NFTs, which is awesome, right? Because I talk to some of these young kids to see where in crypto… We have a security token as well. But you got thrown into this, and talk about HIVE Technologies because big up and down, right? 2018 was terrible, before that you launched, it was great, came back down. And then, now mining operations… I guess, explain that. You just came back with your December numbers, which were very, very good. Explain HIVE Technologies for maybe someone, and this is the first time they’re listening to you.

Frank Holmes: Well, we source only green energy in safe jurisdictions where the weather’s cold. We’re in Canada, we’re in Iceland, and we’re in Sweden. It’s in jurisdictions where there’s surplus energy. We have a very well defined ESG strategy. Like in Northern Sweden, where we used our software to tool down from 20 megawatts to one in 15 seconds, when everyone’s putting in their toaster, then come back up for the day, and come down for an hour at five o’clock, another peak energy consumption period. So, we work with communities, and we work with the local utility company, which saves them hundreds of millions of dollars of CapEx. So, we look for surplus energy. It has to be green, and then we work within those communities to have a very sustainable strategy.

Frank Holmes: And a lot of people tease us about Ethereum because the thought process of proof of stake and proof of work and all this drama, all I can share with you, Frank, we source electricity in Sweden, we mine in the cloud, our wallets are in Switzerland and Liechtenstein, and we sell outside of Sweden and all these. And we don’t sell into Canada, we sell outside of that, into cyberspace. And that was paying our electrical bills. What we started doing a year ago with our ATM was hodling all our coins. And Ethereum was up 300%. That’s a lot when you have 25,000 coins.

Frank Holmes: And then we started expanding our Bitcoin production. So, we basically went from doing $50 a day in production to $500,000 a day. As you saw at the end of September, those numbers are out, we made from that quarter $50 million. And now, we’re giving the equivalent, that if we converted our Ethereum to Bitcoin, we produced over 4,000. We’re the biggest. And we’re the most profitable because we mine Bitcoin, based on the Ethereum ratio, would be less than $2,000 a coin. So, we have very high gross margins, so we’re very thrilled about that, and we continue to look for places to build energy that’s green. And that’s what we’re doing, and we’re going to go to another exahash by Valentine’s Day. That means it would be mining more Bitcoin, even though it’s more difficult to mine it. We’re getting the latest equipment, the most energy efficient, then we’ll have another exahash by the summer.

Frank Holmes: So, what does that mean? It means that we’re going to be doing a million dollars of revenue a day. A day. And having 80% gross margins. And so, I think it’s a very dynamic business, but what’s also important, and that I have a long term vision, our data centers that we own, like in New Brunswick, there is a push, and you can see, it’s not mainstream, but data centers are becoming very valuable, because there’s a push to get away from having all your data on Google and maybe they’re looking at your data. Or Microsoft, or with Amazon. The most profitable part of Amazon’s business is clearly cloud contracts and selling you high performance needing chips. You can license by the hour.

Frank Holmes: So, we’re building that out in Montreal, in New Brunswick and in Sweden, that these chips that we have, they’re the best chips in the world, allow us to get our money back in a year, and then we can turn around to sell to other people who need it for artificial intelligence for cancer research, or it can be for rendering making movies, it can be for smart cities or gaming industry or anything that’s going into 5G for streaming. It’s just all going to need these GPU chips, and the gaming industry’s going to switch over, that you’re going to outsource having the GPU chip to data centers, which can make it very attractive for you to play cheaper. You just have to buy your headset, your console, and you can buy your headphones, but you’re going to use the cloud and pay $5 an hour when you want to play. And we’ll have our HBC allowing you to do that gaming.

Frank Holmes: I think that that’s the big long-term vision with HIVE. So, that’s why I want to own, wherever we could, our own land, and own our own data center, get all our money back. And this business allows you to mine Ethereum if you have surplus time. If someone’s not rendering, turn it on, mine Ethereum, very profitable, otherwise the HBC market is even more profitable.

Frank Curzio: You said 80% margins. What is the price that is break even for you? And I remember back in 2017, ’18, we went to… I think it was $19,000, wherever we went, close to $20,000 on high. But it came back down, and it came down hard to like seven, eight. And I was following miners, even of Riot. And Marathon’s one of the newer ones, I guess. But seeing their costs were $7,500, $6,500, and as you get bigger and bigger, electricity costs more, it’s not the easiest business to scale because you have to pay more to generate more a lot of times. What is your breakeven costs? Because people see a huge decline, and a lot of these stocks get hit in your industry. But like you said, even at these levels 80% profit margins, and maybe they’re a little bit low, because I know you talked about last year, where it was a little bit higher. But what is that price? Because it’s always making money it seems, as long it’s over a certain price. What is that price?

Frank Holmes: So, when you buy these things, they sound like hair dryers. So, they’re blowing all this hot air, mining, and they’re consuming 1,400 Watts. That was sort of the old S9, they would call it, for mining Bitcoin. The new technology, the new chips, they’re much more energy efficient. So therefore, you end up paying upfront more for terahash, they call it, but they consume up less electricity for giving you this output.

Frank Holmes: So, when you try to create an XY… Do remember back when you did function relations in school? You have the X, Y, and Z axis, and you’re trying to create a shape and the intercepts. So, you have to think in this world there are three big factors… And it reminds me also, when I model this stuff, it looks like you’re doing Black-Scholes three dimensional modeling. What are the factors that’s going to move the value of an option around? And that model is based on heat diffusion. It’s interesting. I don’t know if you knew that, but Black-Scholes is based on an industrial revolution mathematical model of heat dispersion.

Frank Holmes: And so, we look at what is the cost for terahash that you’re paying for your chip? It’s the most important factor that tells you how many months does it take to get a return on your invested capital? We’ve had the discipline that it’s best to have six months. So, the ASIC chips we’ve stopped buying right now, because they’re a 14-month payback. It’s too long for us. So, we’d rather turn around and just mine and hodl our coins, unless the equipment comes down for us. So, we do this tradeoff between it.

Frank Holmes: The next is the cost of your electricity, your ops. It’s an important factor. So, the efficiency then of the chip you’re using. So, you’re paying for the power of how many Bitcoins it can produce and how much energy it’s consuming and the efficiency of that. So, HIVE is the most efficient of all the miners. That’s a data point I’m very proud to share with you. Marathon, online, if you look at the data analysis you can see. And it’s because of the blend of how we mine both Ethereum and Bitcoin, and how we have low cost electricity. Last year, we paid two cents on average for green energy.

Frank Curzio: That’s super low.

Frank Holmes: We hacked it out. This year it’s three cents in Sweden. So, the cost in Canada goes up in the winter, then they fall in the summer, but still, overall, they average like four cents. And so, this efficiency, coming back, the terahash is very important for your payback on your money and your ops. So right now, S9s are not going to be very profitable at even three cents electricity. It’s because the efficiency of these machines is just terrible compared to the S19s. And so, I think my peers who are using S9s might be making a thousand dollars a day, and on the S19, they’re making $15,000 a day.

Frank Holmes: But if energy goes up one penny, they’re losing on their S9s, a thousand dollars, $2,000 a day, and they’re only making $10,000. So, the S9s right now, unless you have free energy, are not productive. They’re just not productive.

Frank Curzio: Wow. I mean, so outside of the hash rate, I think electricity is kind of a fixed cost, right? For most, I think. And so is… Again, you can look at the price of Bitcoin, but also the cost of the S miner, but you’re buying it, right? So is it tougher because… I don’t know where that number is on Bitcoin, where, like you said, there’s different components and depending on what’s going on, there are a lot of moving parts, but I know you know this because you model everything.

Frank Holmes: So remember, it’s the difficulty of the universe. It’s the cost you’re paying a terahash, and your operating costs. They create an X, Y, and Z axis. And they’re moving. It’s not a linear square, and they change their shape, like the heat dispersion shape shows. And there are times when you want to actually just buy Bitcoin, you don’t want to mine it, because you’re not going to get the payback in time. It’s an offset to get a high return on invested capital.

Frank Holmes: You can buy S19s, you could pay a hundred bucks of terahash if you want, and it’s going to take you 15 months to get your money back, but you could do that. If you have a higher cost of energy, you still make money, but you’re going to take a long period of time to get your money back. So, that’s one factor.

Frank Holmes: We at HIVE are always triangulating it. We’re looking for what’s that sweet spot? Here’s the difficulty, we run our computational math, and it gives us a heat path between orange and green. And we say, okay, we’re willing to pay this at terahash, and what are the ops over here? And that’s how we managed it. Three moving parts.

Frank Curzio: So, I’m going to ask you this question, because it fascinates me. I’m really engulfed here. So hopefully, the listeners are as well. I mean, we can-

Frank Holmes: I hope I’m not boring your listeners.

Frank Curzio: Yeah, no, I don’t think so. Because this is important, right? So, was there a time, when we saw Bitcoin… I won’t take the absolute highs, which is close to 70K, but between like $45 and $55, where because of those factors, at one point didn’t mix… And we’re talk about like a five month stretch maybe, when that happened, with $45 to $55,000 of Bitcoin, let’s just say. That Bitcoin, the economics didn’t work where you wouldn’t make money as Bitcoin being that high or is it just like, wow, Bitcoin, as soon as it breaks $50, it doesn’t really matter. No one’s going to charge like 10 cents or 15 cents for electricity as long as you don’t go crazy on that, but was there a time when all three of those factors just didn’t mix, and coupled with Bitcoin being over $45,000, and you’re like, “It doesn’t make sense to mine.”

Frank Holmes: It doesn’t make sense to mine it if your operating costs, and it doesn’t make… That’s a big part. Your operating costs are going to make that decision. Like I said, some people are willing to make two years returns on their invested capital. Our discipline’s always been six months. That’s why we have the highest returns on invested capital. It’s not luck. It’s mathematically saying, if I bought this thing today, based on the difficulty today, based on Bitcoin today, how long would it take to get my money back?

Frank Curzio: And you mine every day, right?

Frank Holmes: Every day.

Frank Curzio: Wow.

Frank Holmes: Every day. So, if you’re paying $70 a terahash, you’re going out a year and a half out now, pushing that. And so you better have really cheap electricity to weather that. If you have a higher cost of electricity, you’ll still be marginally, you’ll be profitable with Bitcoin, where it’s trading at today. But you run a risk, and so, we are always making these tradeoffs.

Frank Curzio: Wow. That’s great. That’s awesome. By the way, you talk about mining 4,000 Bitcoin equivalent, but you’re sitting on close to 1,800, I believe. I mean, you finished the year, I think at 17-

Frank Holmes: No, we raised a hundred million on an ATM, we spent a hundred million on new equipment, we hodled all our coins, and at the end of September, our hodling of coins was up 12 fold from the previous year.

Frank Curzio: I mean, Bitcoin, hundred percent-

Frank Holmes: And all that money we raised bought all this new equipment and expanded to an exahash, and we still were able to do that. So, we tapped the capital markets at $6 back in December at a premium. We’re the only company so far to do a financing at a premium.

Frank Curzio: That’s what you’re supposed to do.

Frank Holmes: And we have an options trading. Our options are very liquid for guys who like to do covered writing, because the premium is so high on HIVE, so there’s lots of retail brokers in there doing covered writing with it. We were the fastest to get options traded on the stock. So, we’re pretty excited about how the company’s positioned, but we have been, we’re the least expensive right now on a relative basis, and I think it’s because of this boogeyman, alleged fear of proof of stake.

Frank Holmes: Now, for your listeners, proof of work versus proof of stake. Proof of work is decentralized. Proof of stake is centralized, so you earn an income on it, but there’s very few players that have the money to turn around, to earn the income on it. And the whole concept of Bitcoin is to be decentralized, have transparency of how much was traded, timestamped, when the trade took place. It just doesn’t tell you who the parties were, because that’s encrypted, but everyone can see all those trades, how much was traded, where it was traded, and when it was traded. That’s triple entry accounting.

Frank Holmes: And I think it’s really, to me, fascinating to see how this proof of stake argument is such fun. It hasn’t happened, because the Ethereum network is so big and broad with all these gamers, and they would just destroy their ecosystem. There was a cannabis deal out there that had a token, proof of work, their validating a transaction, then they went to proof of stake because it’s supposed to be cheaper, and all of a sudden the coin fell. Crypto went up, it didn’t matter. The universe, the ecosystem…

Frank Holmes: So, I explained this in capital markets terms, one of the things that made JETS such a big winner is that in our story, we found that in this ecosystem of buyers, there were hedge fund traders that wanted to short American Airlines or wanted to hedge, so they went long JETS. Then, there was another group that said, “These are GARP stocks,” like Bill Miller. These are the cheapest stocks out there, cheaper than trucks and trains, and this is the industry. So, there was GARP investors. Then, there’s another community that are traders. Why? Because JETS has big trading due to energy prices. The biggest cost they have is oil, the volatility of oil gets basically put into the income statement of these companies, and so they have great volatility. So, the trader is short long, long in and out, trading off of energy. And then, we have that investor that says it’s a big part of the economy, they want to be basically long a big part of the economy. So, you have this ecosystem.

Frank Holmes: And what’s interesting, the same thing with HIVE, HIVE’s original investors were gold bugs. It became their proxy because they were reluctant to go open up on a crypto exchange, worried about being hacked. So, HIVE became the gold proxy for them, and by us hodling, it gave them a more defined proxy. Then came institutions, and our big investor was Fidelity. Fidelity gave us a hundred million dollars in the first quarter of 2017 to launch this vision. And so, it’s just recognizing the ecosystem of who’s going to trade this particular stock or this particular ETF. And if you only have one retail group of people, then you really cannot get the big traction, you need to have a complete ecosystem. But the institutions will not come in unless there’s minnows. Minnows basically have what they call price discovery.

Frank Curzio: Yes, of course.

Frank Holmes: And we saw the capital markets explode during COVID. Why? Because all these educated kids stuck at home, they can’t travel, they all became day traders. This facilitated price discovery, and then big institutional money came in.

Frank Curzio: Yeah. It’s amazing how sometimes… Usually, it’s the other way around, right? The institutions, the road shows, the IPOs, but to see crypto being in an area where these young investors get in and institutions are kind of late and still getting in, right? Now, starting to hire across every major bank. It’s pretty cool. You don’t really see that kind of thing-

Frank Holmes: Yeah. It’s very, very cool. But I think the big pivot last year was PayPal. PayPal, I can’t buy my ETFs on it, I can’t buy stock on it, but I can buy Bitcoin at one 10th of a fraction? Whatever it was. $500 of Bitcoin, $2,000 worth. And then it went up fivefold for all these millennials, so they could buy fractions. It goes up fivefold, they peel off 20%, they buy a new TV. You don’t have to go between your bank and your broker and open all those accounts and call and send money back and forth and all that stuff. It was seamless.

Frank Curzio: Yes.

Frank Holmes: So, that really ushered in… And the other one was Robinhood. 20% of Robinhood’s financial success from that IPO came from crypto. And so, it is a new world, but you need to have, for the fund managers, like we have from a couple years ago, new rules came out on illiquid stocks, and it became basically only those where we traded every day, and the spread between the bid and the ask. So, if you don’t get a lot of trading between the bid and the ask, the spread widens. All of a sudden, it goes into the basket of illiquids. Institution don’t want to have to go in front of their pension fund trustees and the SEC or any auditor and say we have all these illiquid names. So, in came all this price discovery, the minnows shrunk the bid and the ask, and all of a sudden more institutional money was able to come in. It unlocked a lot of institutional money.

Frank Curzio: No, that’s great. So listen, we’re coming down to the last part of this interview, I find this fascinating. Again, some people, it might be too technical, they’re just like, “Give me a crypto, it’s going to work,” or whatever. But I wanted to ask you about your forecast for Bitcoin over the next three years. Everyone’s like, “It’s going to a hundred thousand.” No one can forecast where it’s going to go in the next couple months, but just seeing the institutions who want to get in, seeing it’s a trillion dollar market, seeing how much demand is out there, seeing that they’re hiring people, it’s here, it’s integrating everything. Where’s your forecast over two to three years? You see it continually going up, and some people want to go crazy, I know it’s hard to put a forecast on it, but how do you feel about overall, just Bitcoin here?

Frank Holmes: It’s really difficult because of the volatility and the forces. You have global regulatory forces against the crypto world, just like 2018. And today, it’s pent up. The more socialistic or more left or centralist, like China’s the most as a communist, dictatorial nation, you get, they just don’t want it. And the more democratic and more libertarian, then we like to have this other decentralized asset class. Right now, in the world, it’s really gold and cash, and then along comes a Bitcoin, which are decentralized. And I think the governments want to make sure there’s no nefarious activity, which I think is great. And I do think there’s some… What the previous head of the SEC did is chased all the bad characters out that were doing pump and dump tokens, and they cleaned up Doge. So, I think that that worked out well. But I think that right now the forces are, if you read the paper, the EU and crypto mining, it’s all climate change. Canada’s prime minister told the Canadians to get… This is the big reset, at the World Economic Forum they said that we should use COVID as the big great reset for all their social agenda of equalities and et cetera, and centralized controls of all money.

Frank Holmes: So, I think what we’re seeing is a mechanism that they want to control social media, governments around the world, and they want to control money. M&M, but they’re not sweet candies you’re chewing on now. And that’s the force that can delay Bitcoin to a hundred thousand. It’s just recognizing this. But the other force is the adoption by big investment banks, by JP Morgans of the world, and I think it’ll resolve itself that Bitcoin and Ethereum will trade higher. Just remember, it’s a non-event on the 12-month period to double or fall 50%. Gold, it’s 20%. It’s five times greater volatility. So, whenever I’ve been asked to forecast gold, if it’s on money supply, gold should be at $7,000. If it’s on volatility, the gold prices should be up at least 20%, then it becomes just over bought, one standard deviation. Bitcoin is a hundred percent. So, you do have to recognize… So, when you ask me about three years out, for me it’s going to be how many new government policies come out against it that can slow down the adoption.

Frank Curzio: I love it.

Frank Holmes: But global, it’s bigger than most governments.

Frank Curzio: No, and that’s a fair answer. And you’re right, the more data points, the longer you go out. It’s just making shorts and forecasting this could be dangerous as well.

Frank Holmes: But if I use Metcalfe’s law, and the adoption continues with the PayPals of the world and Robinhoods, and they go to Europe, et cetera, in other places, then it’s easy to see a quarter million three years from now. It’s not hard. And many companies taking Ethereum to get an income on proof of stake, they’re shrinking the supply faster, and Ethereum could easily be $20,000. So, it’s not unfathomable to see that. But the biggest headwind are going to be government policies. And remember, we always say in our perspectives government policies are a precursor to change, so that’s why we monitor our fiscal monetary policies and real interest rates rising would hurt all asset classes.

Frank Curzio: Yeah. Great stuff. Great stuff. Great stuff. Love talking to you. So listen, if people want to get in touch with you, I know they can go to the website, and you also have something that’s Frank Talk, which I’ll bring it up right now, which is awesome, which is your blog, but how can they get in touch with you if they want more information about your fund, your new funds, SEA, and things like that? How could they do that?

Frank Holmes: Go to usfunds.com. There’s the investor alert, there’s Frank Talk, and we write on a regular basis every week, and we have other special articles to try to inform investors to make that balanced decision.

Frank Curzio: Yeah. This is all great stuff. And you guys do write a lot, so like once every three weeks or anything, you guys got a lot of stuff up there, a lot of content, a lot of great stuff. So, I know I’m on the email list. So Frank, thank you so much for coming on. Thanks for doing a nice long interview. I’ve tried to keep it short, but I’m just so interested in everything you have to say, so sometimes things go longer.

Frank Holmes: But most important, Frank, how’s the family? Everyone doing well?

Frank Curzio: Everyone doing well, everyone healthy. It’s nice being in Florida, and you’re in Texas. It’s definitely really cool. And yeah, everything’s great. And you? How’s everything with you? Your family? Your business? Seems like everything’s going well.

Frank Holmes: Fantastic. All good, all good. I’m very blessed. I’m blessed with my health.

Frank Curzio: Don’t get too big, don’t get too big.

Frank Holmes: I ran 5K this morning. I’m 66, so next I’ll probably turn 67, so I got to keep doing that running.

Frank Curzio: And how much do you run again? You have to tell everybody.

Frank Holmes: Three miles. 5K.

Frank Curzio: That’s great. That’s awesome. Remember, don’t get too big or you’re going to forget about guys like me, all right?

Frank Holmes: Think with love, bro.

Frank Curzio: You got it. Frank. Thanks so much for coming on. Talk you soon, buddy.

Frank Holmes: Take care, bye.

Frank Curzio: Bye.

Frank Curzio: Hey, it’s great stuff from Frank. Love having him on. Hopefully, we didn’t bore you with ant miners and hash rates and things like that. Again, it’s not easy to follow along, but I think it’s important just to understand a little bit more what HIVE does, and if you’re in crypto, you understand it well. But listen, the majority of people, 98%, 97% is audience. It’s learning. I’m still learning so much about different areas, different industries, different things, different technologies, constantly. The innovation coming out of the sector is absolutely… It’s insane. It’s insane. You’re seeing it in metaverse, look at the sandbox, look at the central land. Crypto’s been all over the place.

Frank Curzio: If you’re a Crypto Intelligence subscriber, definitely tune in. A lot of these things have gotten nailed, but we did take small positions, we’ve been adding little by little, which I told you that’s how… We had lots of losers in 2017, ’18, and it’s a lot of those positions, and some of those became 30X, 40X winners. It’s going to be volatile. This is normal if you’re not in crypto. You know when it’s going to happen, it could be a 40% retracement, 50% retracement. This happens tons and tons of times. Every time it happens, even when we went to 40 to 20, man, just time and time again, like every year and a half, basically, over the past five years. I remember $19,000, it went all the way to… I think $3,500 was the low, $4,000, and then boom, rocketed higher, and then it was just $60,000. Yeah, this is what happens. And then you flush out a lot of BS, a lot of the margin, now the institutions are really coming in at this level. You’re seeing lots and lots of that. Hearing that from some of the biggest sources in the industry, institutions coming in.

Frank Curzio: But just really, really great stuff. Love getting that perspective, and get excited for that ETF. That’s cool. I mean, you’re looking at supply chain issues, right? All these supply chain issues are getting better for a lot of companies. Some of them are warning here and there, but you look at UPS, FedEx, I mean just some of the names that are in that ETF, S-E-A, SEA, and you’re going to see those names. I mean, wow, if you’re looking at a lot of those names in the supply chain, they are reporting massive profits, massive revenue. And almost every one of them, even though they’re growing here with all the money put into the system, and they have pricing power, that they’re saying that we’re still pretty far away from going back to that no bottleneck full capacity thing, which is crazy when you think about it, with some of the numbers that these guys are putting up. It really is incredible. It just shows you, when you cut costs and now your business clearly turned around, all this money liquidity comes into the system, I hope you have more money than ever, you’re seeing shipping, everything from chips and cars, technology. I mean, it is opening up. I track these statistics. It’s getting better and better, each… Pretty much started three months ago. It was finally getting better and better, but little, only a little bit better. Not like, holy hit, everything’s opening up, this is great.

Frank Curzio: No, some companies get it done, they found ways to get it done. They were creative. Apple’s getting it done, a lot of other companies are getting it done, and some companies aren’t. I mean, I’m surprised Tesla, F5, GE warn all the supply chain issues, and Boeing warned but said, “Hey, you know what? We’re starting to ease up. China’s going to be selling that 737 MAX. You’re seeing Boeing really start taking off, off its lows right now.” There are just some guys that are finally getting it done and others that are still struggling a little bit. But man, just to see the timing of this is actually really, really cool. It really is. I mean, these profits of all time are going to get bigger and bigger and better and better. And it’s very, very interesting.

Frank Curzio: Now, I want to leave you with this one note before we go. So, US Global Investors, and Frank doesn’t know, we haven’t talked about this part, but it’s just interesting. His company is publicly traded. Okay? That’s US Global Investors. Has over $4 billion assets under management. $4 billion. Generates $26 billion in revenue over the past 12 months. Pays a 1.6% yield. Think about those numbers I just gave you. Okay? $4 billion asset under management, $26 billion in sales, pays a 1.6% yield, HIVE Technologies. You got the ETF side, that great ETF, SEA, is the third one launched, the other one is the largest airline, and then GOGOLD, which is one of the best ETFs you could buy for gold, in terms of performance wise, it just focuses on big ones and has special metrics, which I covered with him in the past.

Frank Curzio: But also, that crypto focus with growth, right? So, what would you say the market cap of his company would be? $4 billion assets under management, $26 million revenue past 12 months, margins are over 35%, up 40% year over year, operating revenue up a hundred percent year-over-year, again, launching more ETFs, great platform for crypto, which again, is a growth model through HIVE and is little crazy right now, but it is growth. And Frank has tons of great context in the industry, he speaks at a lot of leading conferences within crypto. But what do you think the market cap is? I’ll give you like five seconds. Four, three, two, one.

Frank Curzio: It’s $85 million. That’s it. That’s the market cap of his stock. So, the stock is down from $12 to $5.50, it’s trading at three times earnings and has $4 billion assets under management. So, if you’re looking at competitors like WisdomTree, and again, these are the biggest guys. 2.6% return on assets. 2.6%. 7% return on equity and trades at 17 times earnings. Invesco, return on assets 4%, return on equity, 8%, and has a PE of around 10. 40% of Invesco’s assets are in QQQ, the ETF, which is insane, constant fees. As an asset manager, your goal is just slightly beat your benchmark and you’ll be in business forever and collect fees for the rest of your life. I get it. It’s fine. Perfectly fine. Just beat the benchmark.

Frank Curzio: Yet US Global, okay? When you look at return on assets at 2.6 for WisdomTree, 4% Invesco, return on assets were over 50% for US Global. Return on equity, 7% for WisdomTree, 8% Invesco. Return on equity over 80%, US Global. WisdomTree is trading at 17 times forward earnings. You have Invesco trading at close to 10 times earnings, and you have US Global trading at three times earnings. Pretty insane when you think about it. Pretty insane. So, I don’t know what that company has to do, especially since asset managers have been taking off lately. If you’ve seen that trend, private equity, all these guys, and even just across the board, you’ve seen their stock prices really take off, a lot of money flowing into these names, these sectors, and these asset managers in private equity, all this stuff.

Frank Curzio: Yet you’re not really seeing it from US Global with a $85 million market cap. Man, I mean, getting $4 billion in assets and paying, what? You could pay double the stock price for that, maybe $150 million? I mean, that seems pretty worth it to me. That’s a pretty nice acquisition there. I’m just saying, with a little bit of a growth model. Man, these guys are getting it done. I mean, you’re looking at the growth in everything, in assets under management, in operating margins, raising their dividend. Pretty crazy. And sometimes, you see those disconnects. Again, it’s out of favor for some reason, I don’t know, but I love what Frank’s doing, and love having him on. I really do. I love having him on, going over everything.

Frank Curzio: Hopefully, I didn’t bore you too much, and I know sometimes crypto guys… “He doesn’t know what he’s talking about with HIVE,” and have different opinions and stuff. And again, that’s fine. That’s what we’re here for, right? To get different opinions and then figure this stuff out for ourselves. But this is what we want. We want the back and forth and stuff and it’s cool. I just love Frank. I love that he always explains everything. I love going through his methodology and him explaining. We’re just not taking a stock and putting it in a portfolio. He goes over the whole entire process with algorithms and everything. It’s really, really cool. Really, really cool.

Frank Curzio: So guys, that’s it for me. Our Curzio Equity token, which I talked about last two podcasts is going to be traded on tZERO platform next week, and I’ll let you know the exact date. So, you’ll see that all over our website. We’ll let everybody, if you’re on our mailing list as well, a lot of you are, on which we provide discounts for online newsletters every now and then and stuff, and provide a lot of stories that you might not be seeing.

Frank Curzio: Our website, if you know, is totally redesigned, and it’s redesigned where it’s a place that you can go to every day, where we have new, fresh content every single day. So, we’ve become more and more of a media company. That was the goal. It’s not easy to do. But if you see the format and the layout and everything that we’re doing now, and posting stuff on TikTok and YouTube and Twitter, everything’s really getting bigger and bigger. All the trends are moving in the right directions for us, which is awesome, it’s a lot of fun.

Frank Curzio: But yeah, just becoming a media company is a lot of fun right now. We’re just starting to get a lot, a lot more people coming to our website, even on a daily basis, because now that we have that content on there every single day, and really good, original, fresh content guys, everybody is producing original content. It’s going to challenge you, it’s going to be research based behind it. It’s not going to be some bullshit opinion with no research behind it at all. You could disagree, not disagree, but I could tell you, even from the editors and everybody that’s writing for us, I enjoy the articles. I think it’s original, and I do a ton of reading on those sites and everything else. And it’s really, really cool. And you’re seeing it. You’re seeing those numbers really start to take off social, people go directly to our website.

Frank Curzio: But we’ll let you guys know when that token, when the CEO token, Curzio token, is going to be trading. It’s going to be trading on the symbol CURZ, C-U-R-Z, next week. I’ll let you know the exact date. For those of you who are subscribers to our products, definitely listen to Frankly Speaking, because I’ll probably know then, which is tomorrow, of when exactly it’s going to be traded. It could be Monday, Tuesday, I’ll figure it out, but it’ll be everywhere, and I’ll let you guys know. So really, really exciting stuff.

Frank Curzio: Any questions or comments if you are a current Curzio equity owners holder, and again, go on that tZERO platform, or if you need help signing up to tZERO… Again, it’s absolutely free to go tZERO. That’s just the only way you could trade our token, if you want it or not. Again, there are risks and everything. It’s just, getting lots of questions, I don’t want to address it if anyone is interested in learning more. Just send us an email frank@curzioresearch.com or go to our site, Curzio Research, and there’s links for Curzio Equity Owners.

Frank Curzio: So guys, that’s it for me. Always here for you. Questions, comments on anything, frank@curzioresearch.com. Definitely send them in if you’re a subscriber to Frankly Speaking. That’s our podcast, that’s not on iTunes. You won’t see it any place. We email it to you, and that’s a special private podcast only for our subscribers, much more detail, getting into a lot of things, even some of the holdings. Not all the holdings that everybody owns every newsletter, but that’s only available to paid subscribers. That’s a special podcast. So, it’s a very, very big benefit for subscribers. It doesn’t matter if you’re a subscriber to our lowest price product, which is Dollar Stock Club, you pay $4 a month or thousands of dollars for our biggest products, high end products. But you have access to that, and we’ll know a lot more and tell you everything about the token and exactly when it’s trading tomorrow. So, really appreciate all the support, and I’ll see you guys soon. Take care.

Announcer: Wall Street Unplugged is produced by Curzio Research, one of the most respected financial media companies in the industry. The information presented on Wall Street Unplugged is the opinion of its host and guests. You should not base your investment decisions solely on this broadcast. Remember, it’s your money and your responsibility.