Sazmining Podcast Episode 23: Frank Holmes on Parallels between Gold Mining & Crypto Mining

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Synopsis:

In this episode of The Sazmining Podcast, Will speaks with Frank Holmes, CEO of Hive Mining. They discuss the similarities between gold mining and crypto mining, the role of high-process computing in crypto mining, crypto cycles, and more.

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Frank Holmes (00:00):

And China's already there with almost a big in people on that mechanism and now with their own global digital currency. So there is a race with the us. There is a race with the UK to get their own digital coin. And then all of a sudden they'll be a breeding exercise. Uh, they'll stop their negative narrative on our ecosystem

Will Szamosszegi (00:23):

Within Bitcoin. It's a very, very niche area. And when you go to events like Bitcoin, 20, 21 or Miami, you kind of see all of these worlds collide. I mean, what is your sense of like how things have changed over time or like what, where the industry's at today?

Frank Holmes (00:38):

It was over five years ago. Um, six years ago I launched an ETF ETF called jets and, uh, it's had an incredible run in the past year. Uh, and it is interesting because I was trying to launch a Bitcoin ETF and realized quickly after launching jets that, uh, Bitcoin wasn't gonna go through at the time due to concerns by the C anti-money loan laws and KYC. So a hackers Bitcoin showing up in a listed ETF of New York stock exchange was just not gonna happen. And they're under their watch. I went to Canada, same thing, and I had this information, this knowledge about the industry and friends called me and they didn't believe it is still didn't believe they were gold bucks and they didn't believe in. It said I had written a book on gold and I was well known, recognized speaker and gold fund manager, uh, around the world, uh, speaking at institutional shows and retail.

Frank Holmes (01:35):

And, and so I saw this transition going on with really smart gold investors that what's happened with Bitcoin. What should it be? Why up the positioning. And what I recognize in my research was that when you mine, that Bitcoin or Ethereum, you validate a transaction and you get rewarded with a Virgin coin it's untouched. And, and so that meant it would be no AML concern or risk. And if you, it like they're trying to do for an ETF or a close end fund, well, you only had, uh, clean coins. And that was the original strategy of saying, okay, I'll get behind this idea. I'll be the chair. And I'll write the first big institutional check. And I put $5 million into the creation of the first crypto mining company. And it was an incredible ride. I, I never made so much money on paper in a week and lost a year later, uh, in crypto winter.

Frank Holmes (02:32):

Uh, I never sold any, and it was just an amazing experience of watching the industry. Now, one of the things that also triggered me into the creation of backing up high, this concept was that I went to the consensus conference in New York. And the keynote speaker is the CEO of a multi-trillion dollar fund group and the largest discount broker, uh, fidelity and Abigail. Johnson's a CFA and doesn't speak at investment conferences, but she's speaking at a crypto event now why? And what's her story and, and how they look at this sort of three entry system of accounting, which is a breakthrough from the Venetians and the Mehi and the 1400 of double entry accounting. Now we're gonna get triple entry accounting and how this is a, a major significant boom and had all the credit default swaps, or is what Warren buffet called on weapons of mass destruction.

Frank Holmes (03:30):

They had been on a block chain, the federal reserve would've seen that the liability was only 7 billion, write a check, and you wouldn't have had the global crisis that took place, cuz no one knew how big these weapons of master structure and were, and, and she's commenting it. And so I said, something big is happening. And a lot of those investment conferences, you're invitation only paid by institutional banks and brokers, or they are the retail and it's free. So big retail, like the money show in Orlando gets 7,006,000 people. But the Miami show just recently showed you what was going on. It validate was happened pre COVID, 12,000 people showed up. Wow. And it was a 15 minute Uber drive. It wasn't across the street, this and it was hot and it was human didn't matter. Uh, and they paid $600 a ticket. And at the gate it was 1200.

Frank Holmes (04:28):

So this only validates this momentum of the ecosystems and in this journey of getting behind the creation of high was recognizing these nodes, these validators around the world. And at one time there was 10,000 Bitcoin node validators around the world. Well, you can't get that for tech stocks. You can't get that for gold stocks, you, but you have it in this new ecosystem. And then it blew me away with Ethereum having 30,000. So there is something happening that is still not grasped, except for, I believe the smartest elite, even with the federal reserve and what they're doing today, in my opinion, that Janet yell is really an elitist. Hasn't come out of the closet yet socialist. She was a big head of the federal reserve, the most powerful bank of the world. You know, she was all part of that ushering in, uh, global taxation or regulation and the EU pushing it for harmonization.

Frank Holmes (05:28):

Well, harmonization just means more taxes and regulations. And now being the most powerful office for secretary treasury, she all of a sudden, she ushers in this support for G seven minimum corporate tax. And immediately you see the London bankers that they're pushing out. They don't wanna be part of that because you need to have tax free zones to create competition. We know this in America, at San Antonio where I'm based in Texas, a Toyota plant is here, manufacturing their truck. There's many cities across America competing, but we gave the best tax concessions. Ding shall pay said rich is glorious. And it doesn't matter if the cat is black or white, is who catches. The mouse is pragmatism well to create and ignite the growth in China. He created seven tax free zones along the coast and tax free zones, attract capital and create jobs and innovation.

Will Szamosszegi (06:23):

The big talk of the town right now is everything that's been happening in China and the migration of minors out of China. What are your thoughts on that particular move that, that the party decided to make

Frank Holmes (06:34):

China wants to compete with the us dollar. They want the one to compete. And this happened, uh, started over 10 years ago in which you saw in 2001, 2002 was the G seven, the G 20 was synchronized global trade and lowering of tariffs and, and gift China into the WTO. It was a big global boom that took place. And after the oh eight crisis, it ushered in sort of global tax and regulation. And that was you. You can see that was a, a phenomena that, that hasn't totally gone away only for four years under Trump, did that get stopped? And some of it pushed back, but now it's full throttle again. So you have to look at these macro forces. So what we've been seeing in gold 2008 was 700. Then it runs to, you know, 2000. And so I believe it's gonna go to 4,000 and I believe Bitcoin's gonna go to a hundred thousand, uh, in this next wave and this cycle.

Frank Holmes (07:30):

And there's different reasons for that. But I think what's important is that China wants to compete with the us dollar. And they're big buyers of oil from Saudi Arabia and natural gas from cutter. And they want us dollars. So they've said if you want that yet to back it by gold. So what have you seen since this 2008? China's the largest gold producer in the world in China is the biggest net buyer of gold. And they're using gold to prop up the value of their currency. And they really want to push that currency. Now they're going away to digital money and the same thing, they've gotta have some of gold America has Fort Knox as a gold underpinning behind the currency, even though it's no longer convertible into gold, but it is still the support of it. China is wants to compete at that level. They don't want competition.

Frank Holmes (08:24):

They don't want a Bitcoin to compete with them. Uh, and, and they really don't want anything to compete with them. So what we've witnessed is in the growth of China over the past 21 years, particular or 30 years, I would say is probably a bigger number. That's exponential growth is they skipped telephone poles. They just went to cellular. So the Chinese of building out infrastructure, building those systems have skipped a lot of things. And one of the big parts is really, they jump right into digital money and the digital money has come from WeChat and WeChat does everything today. And WeChat is basically their way to control everything in their system. And one of my analysts a couple years ago was in China trying to buy toothpaste. He couldn't do it with a credit card or cash. It had to be on his phone. So there's a tracking system for digital money, and now they want to have a global digital currency.

Frank Holmes (09:18):

Their credibility is gonna be gold. So we're seeing gold go over into Switzerland, get melted down from bigger bars, into smaller wafers, get sent over to China. And you're seeing now, which I think is very significant Bitcoin mining being shifted to north America. So we had this sort of sea change taking place. Good luck to all those miners going into Kazakhstan, you know, Kazakhstan pollute the world predominantly with coal and, and it's just fraught with corruption. We know this from the gold business guys would come to us with this gold asset in, in Kazakhstan or an oil asset. And they would say, look at gold assets are worth a hundred dollars, an ounce of gold in the ground, and I can buy it in Kazakhstan for 10. This is a cheap public company. And there's a reason for it. If that company ever goes into production, that keek mafia will just take the money.

Frank Holmes (10:10):

You'll never get that money out. You'll never benefit as a public shareholder. I have 40 years of experience with this <laugh> and, and so I saw the same thing with oil assets. You can buy oil assets for 5 cents to the dollar. Soon as that production had go pipeline shifts, et cetera, complication of the asset, it it's just really deplorable. So good luck for the Chinese going there. I think they'll all get ripped off. And, uh, it's probably the best thing for crypto mining for north America and the Nordic countries. Uh, the pools now we're shifting at high to Foundry pool because we believe there's gonna be greater transparency. There is gonna be rule of law, very important as a fund manager and have experienced in funding gold operations in, in Asia, in Africa, in Latin America, rule of law is very significant and the best countries are where there's common law. So America's common law. So now of a summer are gonna get something that they instantly, the parties are accountable responsible. And if they're not competitive, you can switch. So I'm really thrilled about this, this growth that's taking place in north America and Nordic countries,

Will Szamosszegi (11:26):

Especially from a mining point of view. It, it was interesting. I didn't know that full background on how the similar type of, uh, opportunity was available to go. And for example, in gold, you could get gold at a much lower price, but, uh, you're taking on a lot of risk there. And I feel like minors right now are facing a similar type of decision in a different way. Let's say you had all your minors out, running in China, you were taking on clearly a huge risk at that time. And it blew up in, in your face with this recent black Swan event and having to ship your minors outta the country.

Frank Holmes (11:57):

It also really important will, is it helps him being decentralized. China was becoming too big. You know, the, one of the concerns was the communist party shows up or the five families of control, most of the mining in China and say, oh, your family and all your kids and your mothers and aunt are all at her house arrest. And unless you all of a sudden all work together to destroy Bitcoin, we're gonna put you away forever. I mean that, that's some of the stuff Jack BA gave a speech that was sort of criticizing the communist bureaucrats. And, uh, it was called the $5 billion air ball that was a bomb. And he immediately got ushered away to a house arrest and it didn't go public. It's a $5 billion mistake on a speech.

Will Szamosszegi (12:41):

You bring up a great point. A lot of the minors that I've been speaking with are saying that this is actually one of the best things that could have happened for the network, just in terms of protecting it long term for the, in the short term, it's very, very difficult for all the minors who had to get shut down. But in terms of the distribution of hash power, I mean, it is pretty remarkable at how this is going to change things moving forward. And we might be looking back in 20 years and looking at what China did, looking at it as one of the biggest geopolitical blunders in history, uh, which is pretty, pretty wild.

Frank Holmes (13:13):

<laugh> it wouldn't be a blunder for them, for their political ambitions, but it would be a big benefit for the freer world. Yeah, I think that's why I look at it is it's for freedom. And the Bitcoin you see is so well used a class example is where are the most, most of the ATM machines in America? They're in Miami and in Orlando and then New York, well, why are they there? Well, how do Venezuelans get their money out? How do Argentines get their money out of Brazilians? It's the only way without atrocious corrupt governments confiscating your assets. The more socialistic a country is the less respect they have for private property rights. And that's really important if you're, I'm not a lawyer, but dealing in regulated world, uh, and having so many lawyers pay and work with the us, with patents and patent land and having your private property, it allowed for the breakthrough of fracking for oil and gas.

Frank Holmes (14:13):

It, it would never have happened in Mexico because you don't only, if you find oil in your land, it's the governments, same thing with most of Africa. But if it's under common law, it's yours. Friends of mine have massive ranch here in south Texas. There are 3% of all natural gas, big environmentalists, because he has 20,000 acres and he wants to make sure the ground is safe and clean has all these exotic animals from Africa on it, et cetera. But he has the best systems for drilling and for cleaning and keeping the environment, the whole ecosystem robust. So this really happens under common law patent protection. It's your song. You're protected. It's your book. You're protected under civil law countries. It's very debatable. You really don't have that rule of law. Now, the shifting for me, I am so delighted.

Will Szamosszegi (15:03):

Yeah. What do you think are the best areas to mind from that perspective in terms of having the ability to go and trust in the rule of law, in the place where you're going and your mining

Frank Holmes (15:13):

Clearly, the us is, is a wonderful place, Canada, and you can see that Quebec, hydro has its own sort of lobbying group is the aluminum companies. So they basically control a lot of the narrative with the government and they're anti Bitcoin mining because they're worried that money will go there for energy. And they've created all this negative scenario. So one has to look at the tip of an iceberg and say, what you actually see is not what's going underneath. Oh, you're only seeing one eighth of it, seven eighths, uh, big, sure. Your ship, isn't a Titanic gonna hit that iceberg. You gotta look underneath and find out really what's driving it. It's a low of industry. That's been driving the negative narrative in Quebec and on the internet at Miami conference, it was a lot was ripple. Ripple's not a, not a crypto coin really, but they're an attack by the regulator for what they've done, but they have, uh, these bots out there that attacked crypto mining. They attacked anyone that's Bitcoin because they trying to position in the minds of people that ripple is a better place to be. And Bitcoin three is bad.

Will Szamosszegi (16:20):

There's all these narratives going around in the space. One piece that I think it's really important for all miners to touch on right now is the whole ESG conversation. And every minor that I'm speaking with falls at some different point on that spectrum, what are your thoughts on all this? I mean, it, it seems to be such a huge conversation right now, and it's different. If you're talking with a minor who's actually going and producing Bitcoin versus someone who's done some, let's say average in depth type of research versus the person who's not even in the industry. And they're looking in, and then they're just picking a handful of stats and comparing the energy usage to different countries. I mean, what, what are your thoughts on just the environment today of this conversation and, and the true fundamentals behind it?

Frank Holmes (17:02):

One, I've been very disappointed for the Hyde shareholders because fortunately I'm a fun manager and I saw ESG growing, especially in the mining industry. And I've had to deal with green fanatics for a long time.

Will Szamosszegi (17:16):

It's probably the best person to answer this question, to be honest,

Frank Holmes (17:19):

<laugh>, it's a religion. And you can see in places at England, join the green party and they'll give you the 10 commandments of joining their religion. And so it was easy for the ripples of the world or other people to use them as to go after, like they've done after gold mining and ESG has grown and mining companies have been particularly the Canadian mining in Australia, mining companies have been real stewards of leadership in Latin American Africa for hospitals, for schools, for, uh, I know in Mexico, the government got worried because the ADEs were much more effective and efficient in, in helping, uh, the poor villages and also clean environment. So the biggest disaster in Brazil was government mining company, not a public mining company, that it is public, but not one that's, uh, has an independent board, but let's talk about the ESG. So hive has an ESG strategy.

Frank Holmes (18:10):

We're green and clean. That's all I wanna do is mine green and clean coins. Cuz I believed four years ago, this would become more significant. But what happened was everyone that is a minor got pulled down to that narrative. You have to be so careful of what goes on with the, we know in the mining business ox family, they call it ox scam. You know what they did in Haiti in central America, they'll pay off create misinformation, disinformation because there's zes. But you know, there are a lot of gold bugs I've noticed over time. They're also zes too, you know, they, they actually don't buy much gold. They don't buy many gold stocks. They just want to be an anti-government statement. And so one has to put on sunblock to go into this space. You want to go and enjoy and be a participant, but make sure you got lots of sunblock off.

Frank Holmes (18:55):

It's been good because guys like Michael sailor have shown tremendous leadership. I've been involved with that committee. I know some of the other CEOs, one of them said only three months ago, didn't care that they were using Cole, the mine, all of a sudden he's changed. He's got religion right away in that green it's basically, you can't say those type of things. You have to be sensitive over the environment. And so I do think that it basically made everyone focus. Michael sailer took a great lead with that, got with Elon Musk. We had a call very early on a Sunday afternoon with Elon Musk, a zoom call. We all participated. And, and even Elon Musk said, you know, you, you have to correct your narrative and there's consultants note there. If you're not, you know, using coal and, and you're, you're not using, uh, heavy oil like they're doing in Venezuela, then you should make sure you tell your story better.

Frank Holmes (19:46):

So the industry really start pulling their own information and everyone's sent it in and it's decentralized. It's not like the world gold council where you have to give a dollar for every ounce of gold. You produce into the world gold council. And it has a big bureaucracy, even though I know it's a great, great organization, the world gold council, but this council is more decentralized. So if we need money, everyone is expected the throw in money to maintain the educational dialogue and format every quarter to basically put in the data. And what we really show was we consumed so much less electricity. That was alleged. We dismissed that this the green movement and it came to all of a sudden hurt everyone in the industry. The CEOs running these other crypto money companies are so much more sophisticated because hive was the first. And when hive came in, all of a sudden there's all these copycats and there were more stock promoters.

Frank Holmes (20:42):

The riot was the classic SCC would after all of them, we had issues with other people just trying to copy the success of hi Novara company, went public in Canada before the us, because of the capital formation structure lend itself easier for blockchain, uh, new adventures. And so I see the CEOs back then were more like pumps and dumpsters and like a lot of the original ICOs, they really didn't have corporate governance today is different. I tell you will the crypto mining public companies. It's another level it's institutional they're articulate. They grasp the concepts, the issues, and it's gonna March forward. So I remain very, very bullish on this as a growth industry.

Will Szamosszegi (21:25):

I think that what the council's been doing and you guys definitely play a large role in this. It's been incredible. I remember being on that, that Twitter discussion that where Michael sailor and all the others came and start talking, sharing about what the goals of the council were and how people could participate. And I really liked the ethos of decentralization and the questions that were being asked were really, Hey, what is what's going on here? We don't want the bureaucracy that many could see an organization like this becoming and the ethos behind. It really seemed to be, Hey, everyone can participate. We want education out there. And we want to just make sure that we can protect the industry and show the facts, not have a narrative dictated to us by people who aren't in the industry. Let's get the real hard data and show how green this industry really is. And I think it it's incredible what you guys are doing.

Frank Holmes (22:16):

Thank you. You know, one of the parts of our earlier vision in building a high was besides being green and hydro at the time in geo thermal was solar. And we still have not found a deal that was attractively missed on one, cuz you're busy with other issues, but uh, there's tax credits, you know, in the us. So if you build a solar farm, so we'll explore things like that. You know, maybe we have to go and build, you know, our own buy enough land that we have our own solar facility and win. So when you drive by the way, took the family for a week and we drove all the way to the grand canyon, Santa Fe, then over the grand canyon and down to LA and back, it was an incredible trip to see all the trucks and trains on the roads and what was going on and the comedy coming back to life.

Frank Holmes (22:57):

And what you see when you go across Texas is wind farms and I'm talking about massive, massive wind farms. And a lot of it funded by Exxon that electricity is funding their pipelines. A lot of people don't realize or surplus electricity. And then you see some where there's been flaring of excess natural gas. And I think what you're seeing a big push where there's facilities of excess natural gas, build a center near there and do the crypto mining. So it's basically stranded electricity or stranded, uh, natural gas. That's not gonna get on the grid. All of a sudden it can be involved in a cleaner mechanism and natural gas is much, much, much cleaner than coal, a multiple exponential difference. So I think we are seeing this run for alternative sources of energy right now, friends of mine in Texas, uh, they're looking, you know, build up 1.2 gigabytes.

Frank Holmes (23:52):

And I saw this by the way in Eastern Europe where you find stranded electricity. So what we've been finding in New York state, et cetera, old facilities that were for aluminum or et cetera, or basically repurpose them. So you have hydroelectricity doing nothing and then you can repurpose it and you can do go into, into digital this digital world we're going into, uh, we're seeing that in Sweden. One of the big parts we did with hive, the ESG strategy was to work with the community and helping kids go to hockey games and also funding for colleges for gaming, the gaming industry and the bigger part was the software. So when you have this big surge demand for electricity in particular, in the morning, when everyone turns on their toasters and hair dryers, and then at dinner, we could take the software are 20 megawatt to one megawatt in 15 seconds.

Frank Holmes (24:45):

Yeah. And then we can do a break back up. So rather than spending hundreds of billions of dollars for these energy demand, surges or big costs, but on the local community, we are partners with that. The hydro company pays us to do that. So we actually don't lose out for the digital mining business. We help the community. We use software. If it was a hydro facility, it would take 15 minutes of tool lock. We do it in 15 seconds. This is part of that whole ESG strategy. So with that, we get invited to other communities. There's a steel plant, a manufacture stealing. And uh, they want to repurpose their company. They have all this surplus electricity, it's going nowhere. Can we use or building, can you reconfigure it? What we do, we're getting invitations. And we know that Chinese have been knocking on the door to one. They don't want them because in 2018 they just bolted away and they left big electrical bills. They just didn't care. And they don't care about the community. They just care about how cheap they get electricity and grind. Every penny they can get out of it. They don't think with this ESG mindset. So I do say with the public and shareholders, it's helped us. It helps us get an invitation to participate with them.

Will Szamosszegi (25:59):

I think that that's great. Uh, a lot of people don't really get that inside. Look into what's actually happening day to day. How are you impacting the communities where you go and build facilities, you're hiring local people. You're helping communities contributing to the local organizations you contribute to when you go to that community and just create a tremendous amount of economic development. If you weren't there helping out that local community, where you decide to go and build your facility, then that Bitcoin would be produced elsewhere in the world. So it really does help wherever a mining facility goes,

Frank Holmes (26:33):

Something else I share with your listeners now, cause we're now cryptos gone under ever since, uh, the new presidents come in and, uh, Janet yell's taken over secretary treasury responsibilities. You can see that. And, and then negative narrative against crypto, uh, is accelerated. You could really see this in 2018. Now I've heard of this manipulation of gold prices and a bunch of bankers got charged and, and they do spoof the market called where they say they're selling a gazillion contracts and they really aren't. They're just trying to hit stop losses and they play with this market information. But when we come to the crypto space and what happened in 2018, one of the biggest trash talkers was JP Morgan and interesting. They were really doing this and same with Facebook all through 18 because they were running to create their own coin. So I try to share with your listeners, you have to look underneath the water.

Frank Holmes (27:28):

You have to see the seven ACE of the iceberg. Just don't look at the top what's happening underneath. And I think that what took place and you could see every time Congress is gonna have a meeting to talk about Bitcoin, you would see the Senate's gonna talk about Bitcoin. The S SEC's gonna talk about Bitcoin. It would sell off right to the date of that meeting. And then all of a sudden have a pop. The bottom in crypto took place in February, 2000 and, and 19 when JP Morgan announced their stable coin and Bitcoin rallies up to $5,000. And all of a sudden Facebook comes out with their Libra coin and it surges to over $10,000 and people don't could advertise on Facebook again because they finally got out. And then all the G 20 finance ministers did a pile pile on which is illegal and hockey and football, but they did a pile on, on Libra because it's competition because they haven't got their own digital coin out yet.

Frank Holmes (28:27):

This is really about slowing down the, the success of Bitcoin Ethereum, while governments try to get control of the narrative and get their own point out in the marketplace. The economists just came up with a featured story, showing gov coin. It's a picture, uh, and it tells a story of what is going on. So I, I think it's recognizing that we're living 2018 now over again, but I think it's much more compressed of what's going on because as this is happening, positive news yesterday for the ecosystem with visa, the exponential growth we're experiencing PayPal was very, very significant. Last year of allowing young people or anyone with a PayPal account to buy a fraction, you'd have to buy $50,000 coin. You could buy $500 a fractal and two, you can't buy any of my ETS jets and Gou. You can't buy those on PayPal, but you can buy Bitcoin and you could turn around and sell that cuz you bought it at $10,000.

Frank Holmes (29:30):

And I went to $60,000 and you could have sold half. It bought a new TV at best buy or Amazon. That me, you couldn't do that in your brokerage account. You had to go from your brokerage account to your bank and back to the fourth. And you had all this process, it was seamless under PayPal. This is how the world's going to go. PayPal will end up becoming, you know, a form of a Robin hood down the road. And it's showing you the digital lack of friction of going back and forth. And the IRS will be able to track it. You'll have to pay taxes, audit, et cetera. But the fact that it was seamless, that's, what's really important. And we know from Metcalf's law that Bitcoin's capped to 21 million points and as more users come online, the exponential growth will take place. So I, I think it's all very, very positive and bullish. Uh, right now China, as I mentioned at the beginning is a China's is ahead of the us. I think today's announced with Reuters that the EU have a digital coin it's today it's hot off the press, baby,

Will Szamosszegi (30:31):

Hot off the press.

Frank Holmes (30:32):

It fits into my narrative, which I'm trying to share with people is look at the negative narrative and then look underneath it. The bank of international settlements, doesn't like gold. They want to control any gold lending or selling. They hate crypto because they don't control it. How could the bank of international settlements love Venezuela talk trash over Bitcoin, which is about freedom and not corrupt drug Lords like Madero and Shava before him, uh, because they wanna have their own control mechanism. And Gemini talks about that. They're gotta learn to work with regulations. They're gonna deal with it just like Coinbase has. So there is regulations gonna come into the industry. The government does want everything to go digital. And remember the story of my fund manager. He's in China a couple years ago, he couldn't get toothpaste with cash or credit card. And if he didn't have a PayPal type of we hat account, he couldn't get his toothpaste. And China's already there with almost a big in people on that mechanism and now with their own global digital currency. So there is a race with the us. There is a race with the UK to get their own digital coin. And then all of a sudden there'll be a breeding exercise. Uh, they'll stop their negative narrative on our ecosystem.

Will Szamosszegi (31:56):

Hearing you speak through that, just really, it reminded me of the time, I would say in 20 17, 20 18, early 2018, when everyone was talking about now's the time to build, now's the time to build the infrastructure has to get better. And now when you take a step back and look at where we are today, it's pretty crazy how much more accessible this, this environment is, how easy it is for anyone to just go and get exposure to Bitcoin through the, uh, services that they likely already have access to PayPal, Robin hood, whatever it may be. And I, I think that on top of that, you're seeing macro trends just like in the past, you could see that apple, Amazon, Google, these companies were going to dominate because over 7 billion people around the world were going to have access to a smartphone. And right now we're seeing these macro types of trends and the, the status quo being disrupted to a certain degree and the incumbents really not wanting that to happen. So I think it's great that you really are explaining people have to look one layer deeper, two layers deeper than the announcements that they might be reading out on the news. What would you say are the trends that you're most excited about and how do you think that this is all gonna play out over the next five, 10 years? It's easy to get caught up in the day to day news day to day minutia, but I mean, where do you think that this is all heading towards? And

Frank Holmes (33:16):

First of all, I, my experience and what they call the 40 act for investment advisors, and there's the 34 act, which is for public istic companies and 33 act for private companies, uh, in that process. So there's lots of securities laws and layers and divisions with it. And it always takes importance is, is the leader of the top. When Trump came into power really important was the leadership he had at the F sec Clayton Clayton understood capital market formation. He also understood that there were a lot of bad dudes in the ICO market, basically faking that they're really securities trying to say, there are a digital coin and there were just stealing money. And I tip my hat to him. And now who's outta the sec, same thing. You know that the S E C went after these bad guys and they cleaned up Dodge, really important.

Frank Holmes (34:07):

So new, as I said earlier, the new CEOs of these crypto mining companies, another level institutional quality, the new stable coins coming out, et cetera, everything's more, that's gonna protect the investors. So I, I feel very bullish about that, but he was also very focused on capital market formation. One of the big parts of the us as a leader on it's not just a new digital something. It is the ability for you and I to communicate and you to, to speculate and invest or save, take your savings and put it into new idea. There's nowhere more advanced in the us in both breadth and depth in this is very creative, the formation of capital. And so he had noticed that the number of IPOs and I had written about this on my blog every week, many times over the past 20 years, that each year you saw a shrinkage of the number of mutual funds.

Frank Holmes (34:58):

You saw a shrinkage of the number of public companies. You saw private equity taking over private companies and that mechanism for people learning how to go public. The average IPO before to the year 2000 was $80 million. Now it's half a billion, the costs erupt eight fold. It was just prohibitive. So private equity would come in and you as a retail investor, couldn't participate with private equity. So it was the rich were getting richer. It was sort of the unexpected consequences of regulations was actually hurting the retail investor. So he made it seamless. He did everything to streamlined the regulatory process. Uh, the concepts that came out under Obama, under crowd funding, these mechanisms called at the market transactions, AMT, all these things really got pushed through under his leadership that allowed for riot to pay all their S E C legal bills. They use an AMT mechanism, and then they use this AMT mechanism to raise a billion dollars to build up their infrastructure and the same thing with marathon.

Frank Holmes (36:03):

But this was really pushed along under the leadership of Clayton. Uh, so I think he did a phenomenal job and that's just very important for the next level. Now, the head of the S sec taught blockchain and understands this industry at MIT. Uh, and so he is not gonna be, you know, anti he's gonna be anti these, these Bandidos, let's say they're an ICO and they're not, but the, the whole concept of blockchain and crypto mining, it's going to grow because it's very significant from an accounting point of view, the, the concept of transparency had mentioned earlier that had all the weapons of mass destruction as Warren buffet, like the column, these credit default swaps had. They been actually on a block chain, the federal reserve would've seen it, wasn't a half a trillion dollar risk. It was only 7 billion. They could have written a check.

Frank Holmes (37:00):

The whole thing would've that had a crisis to the degree, had it been on the blockchain. And so this mechanism of, of triple entry is profound because the Venetians and the Mai bankers really created a middle class, the trading mechanism, double entry, accounting allowed for trade and allowed for the middle class to grow because prior to that, it was noble and Kings and the haves and have nots. And, and this, we get to this negative narrative today with banking, but really banks facilitate the growth of the middle class. We, you take a look at when the 14 hundreds, when it became sort of standardized double entry, we had a boom, the Renaissance of global economy. Now we're at the digital world and we have blockchain, and this is this me, the mechanism of sort of a triple entry. This is only going to grow. And, and I think it's just exciting to be a participant in that you can do that.

Frank Holmes (38:02):

And smart contracts, I believe, uh, with Ethereum are gonna be the backbone of the apps for blockchain. So with that, I'm so thrilled that hive is the only public company mining, both Ethereum and Bitcoin and Ling, which I call green and clean. And I remember on a panel, it, uh, in Miami getting attack, you know, this, this sort of Frank coin, and then everyone started laughing. And chaning Frank coin, Frank coin, because I'm of the opinion that if you total a clean coin, a Bitcoin, it's never been in a dark pool, never been in anywhere in the world. It's gonna be like Andy Warhol, art 10 years from now, we're gonna go through two more. Havings, we're gonna be much closer to no coins being mined. Uh, and someone's gonna make this piece of art shown the 64 digits. And they're gonna have a picture of a big coin, but they're gonna have embedded in there.

Frank Holmes (38:56):

It's gonna be valuable art. I think digital's much bigger. Uh, the ecosystem globally is much bigger, so it could go to a million dollars and it's okay, because fractals will be there with the PayPals and the Robin hood, something else for your listeners to realize. So I didn't know, it is that when we were getting listed for the, with hi, uh, the prospectus was filed for Robin hood and, and it was supposedly the, the narrative on Bloomberg was that it was delayed of getting through the S sec because 14% of their profits came from crypto. And which really important, which I found from my jet CF was that the early investors into jets were Robin hood, 25,000, bought it around 12, $13 range. And it went to 28 buffet, dumped them, all got out of them. He ate Bitcoin, he hated the airlines. And, and he left a lot of money on the table that knew Robin hood, trader investors, much more sophisticated using Google to do their research, to make their decision.

Frank Holmes (39:59):

Um, and, and so you're seeing this whole mechanism and then naturally the big houses are gonna attack Robin hood attack, Robin hood, et cetera. But I think they've done an incredible job of enticing people into what makes America great. It's free markets, it's free capitalism. But what I found from my jets was called price discovery. Very important word. If you don't have price discovery, how do you know the value? And what we saw was that the volume of jets went from 40,000 to 400,000. And this brought in institutional players. First of all, the millennials trading at Robin hood, all these minnows coming in price discovery, it's a good deal. It's a good deal. Then came the barracudas then came, the sharks then came the groupers then came the sailfish, oh, now come, the whales, uh, now is trading 8 million shares a day. That same mechanism happened to hive.

Frank Holmes (40:56):

Hive started volume starters, surging and surging. And last year we traded more than the other crypto stocks. We traded 2.2 big in shares in Germany, Canada, and over the counter of the us. Thank God. And now we're on for me, we're on NASDAQ. And this is a big game changer because we're the only real ESG strategy company. We're the only one mining, both Ethereum and Bitcoin. And because we might Ethereum, we're the most profitable still. Yeah. So this future growth I can share with you, it's hard to get your machines, even with the drama in China, it's improved logistics wise, but it's still a drama and all these forecasts for all these bit main machines coming in. And yes, they're very profitable machines. There's nothing but delays and disappointments. And so the Ethereum mechanism for us has been great. So as I share with you sort of the inside insightful information, when we go and buy a Bitmain, you have to put 50% of the money up front.

Frank Holmes (41:58):

And then you are at the whim of when that machine is actually going to come. Uh, we had a negative experience with cannon, did a great price deal. And then all of a sudden they start calling, well, we can't give you the total Terah hash that you want. We're gonna be too te ha. You're not gonna get 90. You're gonna get 88. Well, why we paid for 90? Uh, you want to cancel the contract? Why? Because we paid 30 bucks, Atter hash, and they're now trading at 90 and they want to turn around and try to sell it to someone else. There's no customer loyalty by these companies. Very important. Uh, that's why I love seeing that shift. Now, one of the big parts of the, the story for high is the strategic relationship we just announced within Vidia. You know, this is very, now, we're gonna be a very significant player.

Frank Holmes (42:44):

We're gonna get into high performance computing. When you're in a high performance computing, you don't measure the, the value such as $2 a day from an old, a and D card mining, Ethereum. That's what you make $2 a day. You make $2 an hour, and you're 50% cheaper for providing that service than Amazon. For if you're a rendering, you're making movies, you're doing animation, you're a gamer. Uh, you want to do, uh, uh, artificial intelligence research for cancer. Uh, use the system that mechanism is I believe it going to grow and these smaller data centers. And so I think that this allows us to say, we mine, Ethereum, we get our money in capital back and allows us to grow because I think you're gonna see these smaller centers like Starbucks are all over America, Starbucks, all over the world. You're gonna see these small data centers, one to five megawatts of energy offer this high performance computing because people wanna be close to where that information is within 200 miles.

Frank Holmes (43:46):

So I see that as another way for the longevity and for the growth for hi. So it's really exciting. Uh, we're just explore early and exploring that mechanism just like in, in Sweden, uh, we're putting greenhouse the concept of putting a greenhouse in the back and those 12,000 hair dryers basically blowing all that heat out. And you gotta think of that's what each of these GPS or these rigs are pushing out this air. We can recapture it and you wouldn't have a carbon footprint from getting food such as Ture Nidos from Italy and from Spain up to Northern, uh, uh, Sweden to be right in our home backyard. So there's many of these exciting parts in that ESG strategy. And we believe the, that these new Invidia chips, well, we don't give the money half up front. We basically, we, we have a contract, we have a commitment. We're not, there's just, just crypto mins. We have another longer term vision to build up these facilities, uh, throughout Europe and north America. So you,

Will Szamosszegi (44:48):

You guys, aren't just a Bitcoin mining company. You're doing all these other things, Ethereum mining, high performance, you're a blockchain, blockchain, blockchain mining.

Frank Holmes (44:57):

Yeah. And, and we're gonna go into high performance computing. It's very profitable. It's much more stable cash flow. Uh, and we've been investments in defi. Uh, we're looking at a very exciting deal in NFTs. Uh, so we are really that blockchain company that functions like in the gold business, they call a gold wealthy company. We do over 10 million of revenue per employee. Uh, so I'm very excited about being unique in that space.

Will Szamosszegi (45:25):

Yeah. What are your thoughts on, um, on the future of Ethereum and mining on that end? Cuz a lot of minors they have, um, I, I think that they're almost like the equivalent of they explore it only to a certain depth of uh, oh, well the protocol might change and it might remove mining. And so then they might just decide, oh, well I'm just gonna go with Bitcoin cuz I know the protocol's not gonna change. But in terms of getting to those deeper levels, what, what are your full thoughts and, and really approach towards going and saying, Hey, I'm gonna look at Ethereum mining and allocate a portion of my hash power and investment into Ethereum, not just Bitcoin.

Frank Holmes (46:01):

Great question. Because when the launching of five, the first coin we mine was Ethereum. We bought the facility in Iceland and uh, using geothermal energy and all we heard was, that's crazy. Why would you do that? You know, cause it's immediate revenue and cash flow with an 80% gross margin. That's why we did that is always my response and

Will Szamosszegi (46:21):

Which is a good answer. <laugh>

Frank Holmes (46:23):

And, and you're on a, on a big secular trade here. This is a big wave trade. And so no proof of stakes gonna wipe it out. It's gonna happen 2017. It hasn't happened yet. So our thesis been this when the proof of stake, the first rule movement took place to have some teeth to it was in December and all our, our thoughts were all they're gonna do is take supply out. That's all they did. They basically 5% of the theory market disappear of supplies. So as the price was going up, all these people are locked up in earning an income. We made much more money in capital appreciation than that income for our shares, holding Ethereum was a much bigger win than putting this, putting our coins up for, for getting an income. We think that we just see now that it was supposed to come in August London for we had Berlin and then we have London and now London's not going to be dealing with, with proof of, uh, of work.

Frank Holmes (47:23):

It's that's gonna be pushed down again because it's very difficult. They cannot all agree. Um, they, they have to be really careful. They don't get hacked like the, the whole story and the drama of Ethereum classic and Ethereum. Uh, so it's not so easy to say, oh, we're just gonna go do this and, and stop, uh, crypto mining. It's just not gonna happen. I think you've got another two to three years and every time they come up with these new creations, et cetera, they're shrinking the supply just like Bitcoin having did. Wow. And, and if you have gold supply, I tell people if that supply of gold of a hundred million ounces a year was to go to 50 million. Gold's 4,000 Gold's 10,000. That's what would happen because a demand for gold is really under bidding is GDP per capita growth in population. Who's the fastest growing economies in GDP per capita, China and India.

Frank Holmes (48:21):

So guess what you go back. 20, 30 years ago, China and India were 10% of global demand for gold and China was only 2%, but they're 40% of the world's population fast forward. They're now number one and number three in GDP per capita growth, there is China, America, and India, and they're now 55% of all gold demand. So gold is luck. Really the underpinning, every damn gold sells off big. The love trade comes in and is the underpinning that they don't trust their paper money. They don't trust it. They wear their gold. They give it as gift giving. Uh, this is the year of the bull. If you were born in this 12 year cycle, every 12 years as the bull comes along and you're, uh, will born in the year of that cycle of a bull and, and your dad is done well this year, he's gonna give you a three gram gold bull.

Frank Holmes (49:12):

Now your dad's hit a home run because he got Bitcoin early. He's gonna give you a five ounce, uh, gold, uh, uh, sorry, gold bull. Uh, and, and that is, is something that's just not going away. It's cultural. And, and so I think what's happening, uh, if you limit that supply and trade higher, and I think you're gonna see the same thing, uh, with Ethereum as more of the argument and proof of stake and more change they make, it's just gonna shrink the supply. Uh, that's gonna drive the prices higher. Along with what we saw in, in 2017 was the explosion in ICOs while they used the backbone of Ethereum algorithm. So the faster ICO market grew, the more Ethereum exploded. Then the ICO market went under attack. Ethereum fell more. So now the ICO market has been modestly growing, but, um, NFTs, explosion and growth explosion, stable coins like JP Morgan, launching huge growth.

Frank Holmes (50:13):

They're all using the Ethereum algorithm. So in fact, the Ethereum has outperform Bitcoin over the past 12 months. For that reason, you defi huge, huge. We make big fees every day on, on staking. Those are not staking, but those are, uh, using the gas fees. And this is the big fight between the stakers and the gas fees. Well, as, as more products come in and they're gonna use more Ethereum, then we get these gas fees. So we are very comfortable. If they go away, we believe that Ethereum is only gonna trade higher. And so we think we're in a sweet spot and let them all be naysayers. You know, why it's Goodwill because only, only one other mining company is announced. They're gonna mind Ethereum, and that's been hu eight. And they're getting very specific machines from, uh, ethere from, uh, Invidia, but they only mine. Ethere, uh, they're very profitable machines, but they're gonna sell you Ethereum to buy Bitcoin. That's their model. And, but those machines are not able to go and use for gaming. And gaming's a big industry. They're not able to go use those chips to go and do rendering or artificial intelligence in the cloud. We in our position will be able to, as we build out these, uh, sort of modular, uh, high performance computing data centers.

Will Szamosszegi (51:31):

Yeah. And one of the things that I've talked with, a handful of people about like the HPC high performance computing, and it seems like there's a whole nother barrier to get into that type of a business. Right? So, um, it's not necessarily the exact same design of the facility based on what I know. And it's also not the exact same. Um, it's just not as easy as just going and mining Bitcoin, there seems to be other steps to it. How, how is it that you guys went in and, and figured this whole puzzle out and, and, and how are you approaching honestly, getting this part of the business up and running?

Frank Holmes (52:07):

You know what, when I first heard this whole argument on proof of work, proof of stake, and I was very fortunately a young man, uh, Gabe Laden, Gabe Laden was the founder and visionary behind machine zone machine zone. Um, as you told me the story I wrote about this, I'll send a copy of my, uh, interview. He's processing 500 instructions per second in 32 languages. So if you're a young kid from Hungary and another kid in Taiwan, well, what's the hip cool word, like what's word cool mean this. And it would immediately translate. So you would talk to each other, but you would see it in your native tone. And so therefore he could have all the, these kids around the world playing this app, they felt there was no issue on language. And that's why he grew to 6 billion in revenue.

Frank Holmes (53:01):

So this, and he was explaining to me that our facility in Iceland loan could process a hundred million instructions per second, with old AMD chips with only four megawatt, uh, for sorry, for mega cards, Jacob, uh, bite cards. And I said, really? He said, yeah. And he has been doing this in New Zealand. And he created the first or smart city there and explained to them. So they put up cameras everywhere. They got an app and tell you exactly when the bus is going to come. The cameras can identify people that are, that have not paid or stolen cars. They can identify with AI, the, uh, uh, bad criminals that someone's wanted. Uh, and women feel much more safe, safer with this software. metropolitan.io is one of the best artificial intelligence software for smart cities. So this business is going to grow. So this, this idea of these high performance computer data centers and say San Antonio wants to deal with crime and drug problems, et cetera.

Frank Holmes (54:04):

The best way to do it is to put these cameras up, load up all these bad characters in their faces. All the stolen cars immediately get shown up. The license is immediately shown. They drive to that area. Ping goes to the place. This is where they're located with GPS, right? That's where the dangers of big brother is. But on the other hand, it's where people are safer and who drives a lot of that near particular women because in Maslow's hierarchy needs, they have to feel safe emotionally, physically, financially, and physically is important. And this type of weeding out the bad characters in a society that it makes them feel better.

Will Szamosszegi (54:43):

Well, Frank, this conversation has been so unbelievably amazing and incredible. It's so fun hearing you talk through all these concepts. Are there any places that everyone listening can go connect with you online or the company that you want to direct them to,

Frank Holmes (54:58):

To high blockchain technology, uh, dot com? Uh, we have a very robust, uh, YouTube station, uh, educating short videos, two minutes, three minutes. So anyone has attention deficit problem. Like I do, you know, it's, it's quick, uh, uh, gimme an insight in two to three minutes. And I write about the world of, and I talk about crypto every week, but I write about everything about the world, my global travels and global funds@usfunds.com. So you subscribe to Frank talk, uh, and you'll get to, if you know, an interesting goal, you click through and read about, uh, what we just talked about, uh, the misinformation on, on green energy in the crypto space. And this is the real information.

Will Szamosszegi (55:39):

Love it. Well, for the last question, I'll give you an option of which one you want to answer uh, it's either a price prediction, uh, by the end of year for either Ethereum or Bitcoin, or if you want, you can just give a prediction about the general, um, state of the mining industry. Uh, cuz some people might not want to put out a price prediction, so I'll, I'll leave it to you. Let you answer a, any of those three.

Frank Holmes (56:04):

When Ethereum went from a couple hundred bucks to $300 to, uh, a couple thousand, uh, it was a, a monster move and uh, but hive went up 2000%. So what you see in the gold business that when gold is in a, in a bull market, the gold stocks outperform vice versa when you're in a bare cycle, short cycle, doesn't matter the gold stocks underperform. So that's what we're witnessing right now, uh, in, in this space. And the only way to counter that is to have faster growth in your revenue per share and your cash flow or share. And institutions use that from a quant model where very early innings on, on looking at the different mining companies of what their value metrics are. Um, we know that right now, so far, we're still the most profitable cuz we're mining both Bitcoin Ethereum, uh, and if all the other machines come in for other peers and they'd have a much bigger footprint, but on a per share basis, I think we're, we're very, very competitive.

Frank Holmes (57:05):

Um, so what I think for investors is the DNA of volatility. Please, please, please respect everyone has a different look and a different DNA. Every asset class has its own DNA of volatility. So the stock market can go up or down 2% in a day. And that says DNA 7% of the time, 2% gold is 1% gold stocks are 3%. So gold stocks are more volatile, but most of the talking heads on CNBC say, oh, Gold's very volatile. It's actually B less volatile on than the S and P 500 Bitcoin. Ethereum are 6%. So I'm a big believer that having gold in your portfolio, having 10% and having Bitcoin Ethereum or high proxy having 2% is just wise and rebalancing that. I just think it's a good alternative asset class, but what looking at this DNA volatility, Tesla has a same DNA of volatility as the minors over any, any day it's plus or minus 6%. So buying the dips when you get it down 10%, 12% in a day, uh, and that's gonna happen X number of times over the year. That's when you want to be putting on your buy trade and any time it jumps, uh, 25% in a day, you gotta take some profits. If you're a trader and recognize and respect the DNA volatility, because life is all about managing expectations.

Frank Holmes (58:35):

That's a great answer. I love it. Thanks again for coming on Frank, this has been a lot of fun. Thank you will and happy investing.

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