Good afternoon, everyone. This is Thérèse Byars speaking, and I'm the Corporate Secretary of FRMO Corp. Thank you for joining us on this call. The statements made on this call apply only as of today. The information on this call should not be construed to be a recommendation to purchase or sell any particular security or investment product. The opinions referenced on this call today are not intended to be a forecast of future events or a guarantee of future results. It should not be assumed that any of the security transactions referenced today have been or will prove to be profitable, or that future investment decisions will be profitable or will equal or exceed the past performance of the investment. For additional information, you may visit the FRMO Corp website at www.frmocorp.com.
Today's discussion will be led by Murray Stahl, Chairman and Chief Executive Officer, and Steven Bregman, President and Chief Financial Officer. They will review key points related to the 2024 First Quarter Earnings, and a replay for this call will be available on the FRMO website until the summary transcript is posted. Now I'll turn the discussion over to Mr. Stahl.
Okay, thanks, Thérèse, and thanks, everybody, for joining us today. I was gonna start with some general remarks, but I'm gonna, like I always do, but I'm gonna add some general remarks to my general remarks. My first general remark to my general remarks is that we always try to do this real time, that there's not a lot of tremendous preparation that goes into this. We're just taking questions, and whatever's happening right now is what we end up talking about. It's very, very real time, and you might be aware, or perhaps you're not aware, that the conference call format is slightly different. Ordinarily, we actually have a conference call company that prepares the meeting for us and then invites all the attendees, and now we're doing it ourselves. We're doing the technology ourselves.
The reason for that is that the prices, and I was just informed of this literally about when this call was starting. So if we're starting two or three minutes late, those two or three minutes were expended entirely on informing yours truly that the prices for the conference call companies, such as it is, went so high that we thought we'd rather just do it ourselves and save the money. So in light of one of the things that we almost always talk about is inflation. There is an example of inflation that I personally wasn't aware of because I never really thought about it, and I guess it inculcated in everyone an awareness of inflation. The prices went up a lot, meaning they went up a lot more than the generalized rate of inflation, which you'll see published as the CPI.
At some point, we're just gonna do it ourselves. Now, the reason that's so interesting, apart from the fact that it's one microcosmic example of inflation, one of the reasons, and this is actually fits in perfectly, because one of the reasons that, the inflation rate is what it actually is, is that the inflation calculation assumes substitution. So the price of a given commodity rises. The way the inflation rate was calculated in the prior modality was a basket of things, and, given, if a given item increases 10%, you multiply 10% by its weight and do that for every item in the basket. That's the inflation rate. That's not the way the rate is calculated right now.
So the way the rate is calculated is it's assumed that if something rises by significantly more than the rate of inflation, that the way people cope with inflation is, and there's some actual truth in it, but it also distorts numbers. They'll substitute something else, just like we did right now. So rather than pay the extra price for the conference call, we eliminated that cost by doing it ourselves. Now, obviously, there's a limitation on how far you can do it. So I'll just give you an arithmetical example, and to show you how inflation is prevalent in our circumstances and how you can't rely on inflation number. Let's assume, for the purposes of this discussion only, because we're doing it over the phone, and we want to keep this simple as possible, and obviously, the world is much more complex than what I hypothesize here.
A human being could live by buying only two commodities for a given year, chicken and beef. What you need to survive is you need, for the year, 3 lbs of chicken. You don't have to buy it all at once. You can buy it in gradual increments, but at the end of the year, you have consumed 3 lbs of chicken, and that chicken will cost you $3 a lb for $9. You also require 2 lbs of beef at $4 a lb, and that will be $8 obviously. So when you sum those two expenditures, you got $17 of annual expenditures a year. So that's your inflation base. Let's assume the price of chicken doesn't go up, but the price of beef goes to $5 a lb.
Now, the way the inflation rate is calculated until a number of years ago was thusly: you're now consuming 3 lbs of chicken as before, and it costs $3 a piece, so it's still $9, and you're still consuming 2 lbs of beef because the basket remains constant, but now it's $5 a lb instead of $4 a lb. Instead of paying $8 for the course of the year, you would have paid $10. $8 and, $9 and $10 is $19, and compared to the prior number of $17, obviously, you have double-digit inflation. That's how the inflation was calculated for most of the history of the inflation numbers, until I think the watershed event, meaning the change in calculation, came about 20 years ago.
Subsequent to that, we have what's called the chain link method, which we better named, that they called the substitution method, because that's really what it is. So here's how the substitution method works. We're gonna assume, and there's no empirical data on this, you have to make an assumption, that the average person in this limited example is gonna consume 4 lbs of chicken because it's cheaper than beef. You consume 4 lbs of chicken, even though it happens to have less nutritional value, you'll make that sacrifice, but the price is the same. So it's 4 lbs of chicken, and it's $3 a pound still. Well, 3 x 4 is 12. That's your chicken expenses, but your beef consumption reduced to 1 lb as opposed to 2.
It's now $5 a lb, so obviously that adds another $5 to your expense, which $12 and $5 is 17. There is no rate of inflation. So when you look at the published inflation numbers, it's very, very important that you take that into account. So when we're looking at things, and people, of course, are very influenced by the published number, which is fine, but I think it's worthwhile knowing how the published number comes about. In other words, how that published number is calculated. So important to us is building inflation into our investments, because I think we're gonna have a lot of inflation. And, maybe in the Q&A, someone will ask me about that. But the inflation thesis, I think it's worthwhile focusing on, that it's difficult to express in the published numbers.
And that's why we own Texas Pacific and some other things. We can get into that later, if you like. And to the business that we're developing, we're developing a cryptocurrency business. So cryptocurrency, in principle, should be a beneficiary of inflation, but what if there is no inflation? Cryptocurrency is, will, in my humble opinion, will work even if there's no inflation. So we have various investments in crypto. Let's touch on a few, and you'll see we expanded our crypto business gradually. So we have our own servers. We accumulate some crypto, and on our website, we now put a table, so you don't have to read all these crypto numbers. You can look at it yourselves, and you can see what it is. We're gradually increasing our exposure to crypto. Why gradually?
Because as a function of the economics of crypto, the purchasing power of crypto in relation to the equipment you have to buy to mine crypto, is constantly getting cheaper. So in round numbers, years ago, when we started, you could have bought one of these servers with not a lot of hashing power, and you had to pay one Bitcoin for it. Today, you can buy servers that have maybe 15 or 18 times the hashing or computational power as the servers we bought six years ago, and one Bitcoin will probably pay for four and a half, maybe five. So as you'll come to understand momentarily, the price of the equipment is always going down. Now, very few people believe that, but that's the empirical reality, and it has to be the empirical reality, as you'll come to understand momentarily.
But before we get to that, just remember, it's not merely the servers we have on our own books. We own a small interest in Consensus Mining, which is a mining company, which hopefully, if all goes well, will be traded in the public markets in about 90 days. Hopefully, that will happen. We own a piece of a hosting and cryptocurrency mining rig repair company, which we refer to our documents as HM Tech, but it's really HashMaster. We own a very small interest in Digital Currency Group. And we also own fairly substantial interest and it's been getting bigger in Winland. We used to call it Winland Electronics, now it's Winland Holdings, and as of most recent reckoning, we have something like 1,586,000 shares and some increment, and we constantly expand that.
The way we do it is we buy shares in the open market, and you will observe that frequently we make transactions with Winland, meaning that we buy some mining equipment, brand new, state-of-the-art, which we swap with Winland in exchange for more Winland shares. We're owning currently something not far from 34% of Winland, and that's gone up a lot in the last several years. It's important to keep one's eye on that. It's important to talk about this. There are three things you have to understand in crypto, and the most important one of which is— There's something called a halving every four years. We're about 190 days away from the next halving. What does the halving mean?
It means that the reward you get for mining crypto, mining Bitcoin, which actually really means validating the transactions. The reward you get is cut by 50%, meaning it's cut in half. The amount of crypto you're gonna get in each successive iteration of halving is gonna be cut by 50%. So in order to make the system work, everyone's going to have to find a way to lower their electricity costs and increase the processing power of the equipment. That's actually what's been happening over the years. No one will believe this, but I can tell you, because I could document it, if we were in person, I would bring out documents.
I would be able to prove this to everyone's satisfaction, that the efficiency of the state-of-the-art cryptocurrency mining rig, relative to the first ones we bought, I think seven years now, when we started buying these things, is probably increased by 96%. And if I err, it's only because I err on the side of caution. I don't think there's any other electronic instrument that has gained that much in efficiency. We measure efficiency in this particular case, in electric power used per unit of computational power, which we call a terahash. A terahash is one trillion transactions a second. One terahash per second. So that's what's going on. If you buy too much equipment in any one iteration, you stand a great risk of being obsolete.
So you buy equipment, your big risk is you might be obsoleted before you've actually gotten through the estimated useful life of the equipment. You don't want to do big transactions. What you want to do is do small transactions and gradually grow your hashing power, and you want to grow your hashing power at a rate that's greater than the hashing power or the computational power of the entire system. That's what we've done in our publicly traded companies. So Consensus, which soon will be publicly traded, Winland, which is publicly traded, and HashMaster, which is not publicly traded. Done that in all three. The three vectors. Obviously, I stated the first, which is the halving, and you understand that. So let's look at the halving in more detail, in isolation, if we can.
Look at it this way, every four years, the amount of Bitcoin you're going to get for using a certain amount of computational power is going down in half. So it's another way of saying, in order to have the same, reward as before, produce the same amount of Bitcoin as before, what you need is, you need a lot more computational power. Another way of saying is the costs are going up, because even the equipment gets cheaper, the electric power is not getting cheaper. There are some exceptions to that, but generally speaking, it's not getting cheaper. So like any commodity, Bitcoin is a commodity. If the cost of producing is going to go up, it's going to go up. With the halving, it's engineered to basically double in price every four years. Remember, it's digital scarcity, so it's engineered to do a certain thing.
That's one of the vectors that makes it go up. Another vector that makes it go up is what I talked about, is the hash rate, the aggregate computational power of the system. The more people that are mining for Bitcoin, the more robust the Bitcoin blockchain is, meaning the lower the probability of somebody is going to be able to hack it, and incidentally, no one's ever been able to hack it. But what happens to you from the point of view, you individually, as a miner, you're expending more effort, but you're competing with more people. You're like getting less Bitcoin.
So not only do you have to worry about the halving every four years, less amount of Bitcoin you're getting per block, but you got to worry every hour of every day, because most of the time, not all the time, most of the time, the aggregate hashing power or the aggregate computational power is increasing at somebody is saying the costs are going up. It's not as sudden as the other case, and sometimes it goes down, but the general trend is up. So if the hash power goes down, which it infrequently does, but if it does, it'll actually lead to a lower Bitcoin price. Generally speaking, it's going up, so the prices... Well, the amount of hash power is usually going up, but remember, it could go down.
But it's better to think of, in normal circumstances, the aggregate hash power system is a vector that propels the price of Bitcoin upward. The halving propels the price of Bitcoin upward. Now, there's a countervailing variable, which is the price of these rigs that you buy. There are occasions when they actually go up in price, which we actually influence the Bitcoin price upward, but most of the time it's going down. So those three variables, if they were well understood, which they're not, but if they were, if they were well understood, the price of Bitcoin would not be volatile, because those are the primary constituent elements. It's very, very simple. It also has one benefit, apart from these three vectors, that commodities in general don't have.
Some commodities in general, whether it's gold or wheat or silver or what have you, there's no reason why the production of any commodity can't be increased. It can be done, and the price goes up enough and return on invested capital for those people producing those commodities is high enough, you can be absolutely certain that the price is going to increase on the commodity in question. No doubt about it whatsoever. But if the price of commodity were to, in question, were to increase, usually you can get more supply. Bitcoin is programmed that supply is always dwindling. We're now gonna produce over the next 116 years, I believe, less than 1.4 million Bitcoin. There's about nineteen point five odd million Bitcoin in existence. So...
This is a really incredible investment, and a lot of bad things that can happen to it, but that's the way to understand Bitcoin specifically and crypto more generally. Now, let's assume, and now you understand the investment thesis, now you understand why we build this business so slowly. A lot of bad things can happen. Some of it's obvious, some of it's not so obvious, but so far, those things have yet to happen. If the three vectors, which I just enumerated, were well understood, because they happen over time, and even when they happen, they are very, very predictable. They should be gradually discounted in the price of the coin. So they're having you know about, you know, what day is gonna happen, and it should be gradually discounted according to hash rate. You don't know in advance if it's going up or down.
Generally speaking goes up, you don't know by how much, but you can see it because it's calculated every minute. So it should be reflected in the price minute by minute by minute. And as far as the price of machines go, they fall literally every week. There are some exceptions to that, so there'll be some volatility, but generally speaking, they're falling between 3% and 3.5% a week. That's the normal regimen. Doesn't change, doesn't change all that much, but it does change. So if indeed crypto, and you're using Bitcoin as an example, Bitcoin, by the way, doesn't have to be the dominant cryptocurrency. It just is because it has the biggest operating system and the most loyal community of miners, which is a really bad term. It should be called validators, but it would be much easier to understand.
But they call them miners, and I suppose we're going to have to tolerate that term. But basically, it's just validators. That makes the robustness of the system. So if all these attributes are known, Bitcoin, my investment thesis is that Bitcoin, as an example, should become gradually less volatile. And point of fact, it turns out there is something called the Crypto Volatility Token. You can see it on CoinMarketCap.com. It's calculated in a way that resembles the VIX, or the Volatility Index, and it can go lower than zero, and it has a high value of 200, so it's a range of 0-200, and it started trading about a year and a half ago. It had a value of 80. Now, in round numbers, I didn't look today, but it has around 40.
Now, 40 in crypto terms would be a very volatile market, and 40 in equity terms would be a very volatile market. So crypto right now is a lot more volatile than equities. The only point to be taken away from this part is that it's approximately half the volatility it was a year and a half ago. I personally believe that eventually crypto is going to be less volatile than equities. I believe it's also going to be less volatile, but since getting a higher rate of return, and that is one of the reasons I believe one day, assuming none of the many things that could go wrong, actually don't go wrong or do go wrong, I think it's going to be the biggest asset class. So that's the takeaway.
Now, looking at our financial statements, just want to put a couple of points out there and, for you to notice if you haven't already. So you'll notice first, the shareholders' equity attributable to the company, as opposed to our total shareholders' equity, which we'll get to momentarily. We passed $3 million. I don't know if that's the record shareholders' equity. I didn't look. I think it is. In any event, equity, total liabilities, and shareholders' equity is $391 million. I think that's... that's otherwise known as total assets. I think it's the biggest balance sheet number we've had so far. So when you look at this balance sheet, you'll see minimalistic debt, because of some big holdings. The earnings can be volatile, but remember, they're mark-to-market earnings.
We have big, pretty big, tax liability against our investments because we hold so long. So when it goes down, we don't feel the full force of it because we unaccrued some of the tax liability. So as I said, we have minimalistic debt, and you can see basically our debt is a, a mortgage. Its amount now is $660,000, been gradually paying down, and that is ownership of the building that houses HM Tech, otherwise known as HashMaster. Cash on the balance sheet is slightly less than $39 million. And the biggest liability we have, which is liability to government, a deferred tax liability of $24 million, which we only pay if we sell, and we're not planning on doing that, hopefully for a very long time.
And there you have the makings of, if I do say so myself, an attractive balance sheet. Ultimately, in due course, the crypto investments will grow, as they have been growing, and eventually you'll be able to see an earnings and revenue stream related to it. At the moment, they're all minority investments, so we don't consolidate. So you can see the direction that we're gradually going in. No guarantee that we're going to end up in that direction, but takeaway is we're gradually increasing our exposure to crypto in some consistent and, ultimately, hopefully meaningful way. Now, I should tell you, a lot of bad things could still happen to the crypto experiment. There's no guarantee of success. It's just at this point in its evolution, it's probably in the best circumstance it's ever been.
So one quick way of just keeping an eye on the health of the crypto environment is looking at that volatility number. So it's Crypto Volatility Token. You can find it on CoinMarketCap, and there you have a synopsis of what we're doing, and I hope that was insightful or instructive to you. And maybe now, if there are any questions, Thérèse, we can take them and address them. If you wouldn't mind reading them.
I would be happy to. The first one is: Horizon has launched a number of ETFs in the recent past. From the Horizon perspective, why ETFs versus mutual funds? From the FRMO perspective, how do ETF purchase versus mutual funds impact the Horizon revenue stream, if at all?
Okay. Well, first, from the Horizon perspective, the mutual fund, the historical mutual fund, in certain ways, it has a little more flexibility than the ETF. So in that sense, one might prefer the mutual fund. But in all the other its, respects, the cost of launching them, the ETF is far superior. So most people who buy ETFs as opposed to funds, would rather buy an ETF than a fund. One reason for that is the costs, as I said, are much lower. Another reason is you can sell during the day, whereas the mutual fund, you have to wait till four o'clock to take your money out. So a lot of people like the liquidity aspect. So whether we agree with it or not, from a Horizon perspective, ETFs are here to stay. They're not going anywhere. If anything, they're going to grow even more.
You might want to ask: Why didn't Horizon get into it earlier? And the reason was, until not long ago, you couldn't do an actively managed ETF. You could only do an index ETF. And we don't, we didn't want to do index ETFs, although we're not totally against doing the index ETF, but we wanted to actively manage ETFs. And it's a whole long discussion, active versus passive, which if somebody asks me a question, I'll be glad to go on for hours and hours about that, if you like. But I've written plenty on that subject, so I'm not going to belabor it at this moment. That's the Horizon perspective. The FRMO perspective is we have the revenue share agreement, and whatever revenue is produced from ETFs are covered, just like mutual funds and any other investment.
So if there's revenue from it, it'll do very well. Now, one of the ETFs, I'll just give it an honorable mention, is what we call the Blockchain Development ETF, and it doesn't have a lot of money yet. It's only a little over $3 million of assets are managed. But it is my contention that the day will come in the not-too-distant future, where cryptocurrency trades primarily on exchanges. That's not the case today, but I believe for reasons we can go into, if you want to explore it, because it'll take a lot of time to explain why. I believe exchanges are the gateway to crypto. I believe when crypto gets to be a legitimate asset class, which is well on its way to doing, most of it, not all of it, but most of it, is going to trade on regulated exchanges.
One of the reasons, just to tiptoe into this subject is, one of the reasons is, if you're going to have ETFs in crypto and you can get in during the day, you have to have prices that you know you can validate. Meaning you can't have, phantom bids and offers, which happens, known that that's practiced on the spoofing. It happens pretty frequently. You can't allow that. You have to regulate the participants. And now crypto trades globally, so one of the issues is you think you're not going to have a regulated exchange when somebody's trading crypto outside of this country. How do you know they're even obeying the regulations? Or more importantly, what can one do as a regulator to ensure that people who are not citizens of this country are actually going to respect our regulations?
So you have to trade on the exchange. That's the only way it's going to happen. And if you're going to trade an exchange, well, if it's a global product, how could you regulate participants that are not physically present in the United States, where the authority you have under them? So therefore, you could argue, and none of this has been worked out, these are just questions that are asked. You might only allow people on your exchange that the United States government has some jurisdiction over. And until you're sure you can get jurisdiction over them, maybe you don't want to sponsor an ETF that would be Bitcoin. At least if it were up to me, that's what I would do. But I'm just one person. I certainly have no regulatory authority, but that's the way I would look at it.
So anyway, you can see what's going on. This fund, over $3 million. One day I have hopes that this is going to be a pretty neat fund. So since one can't actually invest directly in the ETF that owns crypto, even though there are crypto funds that in the United States that are licensed, that buy the crypto futures, you can't do the physical yet. So I think that's kind of a neat fund. Will it catch on? I don't know. I'm hopeful that it will. I'm pretty confident that most of the time it's gonna have pretty good performance. But let's say I'm right and this actually happens, and I might be wrong, but if I'm right and it happens, what happens when a change would make such an attractive investment over the long term?
When you introduce a new asset class, which has happened a number of times in the last hundred years, your... the expenses already being reflected in your income statement at the moment. You're just putting more throughput on the same systems. So your expenses go up minimally, your revenue grows and goes up a lot, and the differential goes to the bottom line. And that's when you look at the financial statements of the changes, you'll find they have very, very robust financials and extremely high profit margins. So I hope that addresses a lot of that question. So what else is there?
Okay. The next question is: Can you tell us how many shares of the Canadian Securities Exchange are owned by FRMO Corp.?
Okay. I think you probably... You're the secretary of the corporation. You probably have the record of that. So rather than me give you memory, why don't you tell us what the number is? You must have-
In my records, I have 380,000 shares owned by FRMO Corp.
Okay. Well, there we go. That's an, that's an easy one. Okay, what's next?
Next one. In absolute terms, which investment is the most undervalued on the FRMO Corp balance sheet, in the opinion of Murray and/or Steven?
Okay, well, I'm gonna take the liberty of ever so slightly rephrasing the question for reasons you'll understand from the answer. I'm gonna interpret it as what investment has the most upside, the greatest potential, and I think it's Bitcoin Cash. Bitcoin, Bitcoin, by the way, I think has enormous potential. I think Bitcoin Cash has more potential appreciation involved in it. So basically, with Bitcoin Cash, the same protocol as Bitcoin. Bitcoin Cash, one Bitcoin Cash trades at 0.7%, less than 1% of a Bitcoin. And the reason it trades that level is the mining system, the mining network, is less than 1% of the Bitcoin mining network. So there's no reason why that mining network won't grow, even in relation to Bitcoin.
The reason is there are so many potential use cases of the blockchain, just in transacting securities and so on and so forth, although a lot more than that. We're gonna go eventually in the securities world, to same-day settlement, probably in a couple of years. The current systems are just not adequate for that, and it's much harder. I would argue in the Bitcoin cases, it's impossible. I guess nothing's impossible, but so difficult, you can practically say it's impossible of hacking, Bitcoin. I don't think anybody's successfully done it, ever. In any event, Bitcoin, in theory, should be worth a nominal value. They're valuable, nominally nominated currencies. In other words, anything that has a face value, like a government bond or cash or things like that, crypto or Bitcoin, could be used as a substitute for that sort of value.
It should be worth at least that, and arguably more than that. So if Bitcoin Cash trades at 0.7%, not 7%, 0.7% the value of Bitcoin, and it went to 2.8%, you basically have all the appreciation potential of Bitcoin, which is enormous because it's supposed to double every four years, minimally. And that's actually, it's experienced much more than that in time. And if you go from 0.7% - 2.8%, which is still a fraction of Bitcoin, that's another 4 x, or whatever the, the growth expansion is for doubling every four years. So that's, to me, the most, attractive investment in terms of its potential upside. But as I said, the cryptocurrency project can still fail.
So, we have to be mindful of that, although I don't think it's going to.
Oh, Murray, Steven here, I would make your job a little harder and,
Mm-hmm.
Amend the question to... There are a couple of ways to look at what would be the best investment. One is the percentage increase the security could have, and then there's the question of how large it is. So in terms of total dollar return or market value return to FRMO Corp, would it still be Bitcoin Cash? It might be something that-
...Yeah, you're right. So basically, we have a lot less Bitcoin Cash than we have, Bitcoin or, Bitcoin Cash Investment or Bitcoin Investment Trust, than we have Bitcoin. So you're right. Our biggest exposure in crypto is clearly to Bitcoin, mostly in the form of the Bitcoin Investment Trust, but we're buying along the way, so we have plenty of time to buy.
Ah.
I don't know what our future numbers are going to be. So we recently bought some Bitcoin Cash. And that's one of the reasons, incidentally, why the funds are there, because in addition, people can't see this, but it's worthwhile noting. When you look at our liquidity in terms of the balance sheet, the only cash you're seeing is the cash that's consolidated. So our own bank accounts and our own brokerage accounts, how much cash we have. Obviously, the only debt we have is the mortgage. You're not seeing liquidity in the funds. Then beyond that, we have enormous borrowing capacity that we never touched, but we have that as well. So... And we have time. So little by little, we've been adding, it's in the funds, Bitcoin Cash.
So we'll see how long we're going to do it, but the upside potential really is like everything else. We accumulate over time. So I hope I addressed that part of it satisfactorily. Did I, Steve? Maybe not.
You did. In fact, you answered in a way I didn't expect. Thanks.
Okay. You're welcome. Okay, so, what's the next question to ask?
Next question is: Are FRMO's shares in Franco-Nevada held directly through funds or a mix of both?
It's a mix of both. Some are held directly and some are in funds. That's true.
Okay. And this first, there's a comment. This shareholder wishes to thank FRMO for listing the library locations on the Horizon Kinetics website. He looks forward to visiting some of them. And then he would like to ask for an update on how the short sales of the path-dependent equities have been doing over the past year. Also, to what extent do high short borrow rates and/or short dividends detract from the investment? Or does the use of options avoid these expenses for FRMO?
Okay, well, basically in the last 12 months, the shorts have been fabulous. The best ones have been the volatility shorts. It's worthwhile noting we don't short volatility if volatility is below its average, so the volatility metric is the VIX and the average, I may be slightly off, so don't hold me to this. It's from memory, but the volatility average over time, which I define to be the volatility since it started, is 19.53%. So we haven't shorted anything since May 31st. I know that because the Volatility Index has been below 19.53% for every day. Now, when I say the Volatility Index, I don't mean the spot VIX that you're looking at. I'm actually looking at the forward future VIX.
But even so, it's, it's been below 19.53%, and we haven't shorted any since May 31st. So on our records, May 31st, last day we shorted those and they've been, they've been great. Why are we shorting it right now? Basically experience, and that's what you have to go on. Experience shows us if you short below 19.53%, the, the index doesn't stay below 19.53% for very long, and you're bound to have a spike in the VIX. We haven't had it since, as I said, May 31st. But, we can't tell when it's going to happen, but I'm pretty confident it's going to happen. So what's happening is now we're just working down. As you can see, our balance sheet, we're working down the values.
So by the contango, the volatility curve, we're short, it's losing value constantly. It doesn't lose value every day, but it's losing value constantly, with the internal daily trading of the things that we're short, and that's great. So we'll see. I don't think we'll get to zero before... We'll never really get to zero, technically, just approach it zero. I think it's going to spike up before we get to an ultra, ultra low number. But you can see relative to costs, we're a low number. The other things that we've been shorting are funds that are also path-dependent, that pertain to precious metals. And there we are still shorting them, and we've made a good return on those. Not as good as the volatility, but pretty good.
Even though we shorting every day, I don't think we've made money in the last... I'm doing this from memory, so I could be a little off, but I don't think we've made money on it in the last six months, and I don't think we've lost money in the last six months. I think basically it's in stasis for the last six months. Ultimately, it's path dependent. We're going to make money on it, so we short a little bit more every day, and those are essentially our short exposure. So you can see from the balance sheet, you can see cost versus market. It's pretty good. Oh, and by the way, I should also mention all our short investments are hedged with options. So we're 100% hedged.
Matter of fact, we're actually technically probably 105% or something like that. 100% + small increment hedged. So if it were to go against us, we're protected against that contingency. And the hedging costs are actually unusually cheap. So the hedging cost is less than the contango, so it's worthwhile hedging it. It's actually much less than the contango. And then, because you don't really want to make a lot of more money on your hedges, you want to lose all your money on the hedges because you don't want your underlying investment to go up, you want it to go down. So normally speaking, we lose money on our hedges.
Although sometimes when the market is going against us, we actually take a mark-to-market on the underlying things for short on our short sales, and we make money on the hedge. Not the way we want it to go, but we're prepared to do it. In any event, the ordinary or normal losses from hedging are deductible for tax purposes. So tax rate is so high, when you factor that in there, it's actually these are very cheap hedges. That's why we maintain a fully hedged position. So other questions? Anyone?
Actually, that was our last question. That was our last one.
Okay. Okay, well, in that case, I remain seem to have a need to thank everybody for following us and the questions and the attention you pay us, and we'll do our best to be worthy of your confidence in us. Of course, we're going to reprise this in about three months. This quarter was unique because we had the annual meeting, and we answered a lot of questions there. But if in the interim, if matters come up or if you didn't think about this meeting and you want something addressed, please contact us and we're going to make sure we get you an answer. Until that time or next one of these calls, I'll just say good afternoon and thanks so much for your support and we'll be chatting soon. So bye-bye.
Cool.
Okay, so I'm signing off now, Thérèse, if that's okay.
Yes, that's okay. Me too.
Okay, very good. Okay. Thank you. Okay.
Thank you.
Bye-bye.
Thank you.