In the past few months, we have heard MicroStrategy and Square talk about their investments in Bitcoin, but other cryptoassets have not received such good publicity. One company that might want to change this situation is FRMO Corp (OTCMKTS: FRMO), a U.S. company that operates in the investment services sector.
Here is how Reuters describes FRMO Corp:
“FRMO Corporation is a holding company. The Company is an intellectual capital company engaged in identifying and managing investment strategies and business opportunities. The Company’s investments in unconsolidated subsidiaries include OneChicago, LLC, Digital Currency Group, Inc., CNSX Markets, Inc., Miami International Holdings, Inc., The Bermuda Stock Exchange and Horizon Kinetics, LLC (Horizon Kinetics).
“Horizon Kinetics is an investment advisory and independent research company… Horizon Kinetics offers separately managed accounts, mutual funds and alternative investment products for individual and institutional investors.”
FRMO starts by saying that in the past six years, it has changed in a significant way:
“These changes commenced with our observation, in the late spring and early summer of 2014, that our closed end bond funds would, in the best case scenario, generate very limited returns in the future, given the low yields and the existing tax rates. At that time, the decision was made to gradually reduce the position.”
Since it would have cost the company a large percentage of its cash balance to “fund the acquisition of an operating business” — something which would have “guaranteed a low return on investment for the ensuing foreseeable future” — it decided to build a cryptocurrency business since this “did not require a huge capital commitment.”
FRMO says that its investment in the crypto space came in 2016:
“The first mention of the term cryptocurrency occurs in the 2016 shareholder letter. At that time, FRMO made a small investment in Digital Currency Group. That company, it will be recalled, owns Grayscale, which in turn manages the Grayscale Bitcoin Trust (GBTC) as well as other cryptocurrency funds…
“Shortly before FRMO completed the Digital Currency Group investment, Horizon Kinetics established its own fund to invest in bitcoin. In addition, various of the Horizon Kinetics mutual funds and partnerships invested in GBTC.”
It goes on to say that “the FRMO private partnership investments now hold substantial amounts in bitcoin.”
FRMO also does some crypto mining (mostly LTC, BTC, ETH, and ETC).
Next, FRMO says that it has “very small amounts of other cryptocurrencies, such as Bitcoin Gold and XRP held in the investment partnerships and, therefore, owned on a look-through basis.”
From the point of the view of XRP HODLers, the following section of the Shareholder Letter is the most interesting:
“XRP, itself, is one of the more intriguing currencies, as it is explicitly deflationary. There is a modest cost for transacting in XRP, which is not actually paid to any intermediary. The fee, which is a very small fraction of a unit of XRP and which is used to protect the network, is simply destroyed. Therefore, the number of XRP units is constantly decreasing.
“If the transaction velocity of XRP were to rise greatly, the number of currency units would decline greatly, thereby creating a substantial return even if the coin itself did not experience an increase in market capitalization. It would, however, experience an increase in value per unit.
“Unlike other cryptocurrencies, XRP is not mined, and its validation system is closed to outsiders, which differs from the cryptocurrencies that are mined. The mined cryptocurrencies are open systems that welcome new participants. Nevertheless, XRP, at least theoretically, does have significant return potential.”
The views and opinions expressed by the author are for informational purposes only and do not constitute financial, investment, or other advice.