Pep Pods from Cummings Pepperdine
Pep Pods from Cummings Pepperdine
Calculating fair market value in the crypto arena | Cummings Pepperdine’s Crypto Questions with global head of accounting solutions at Lukka, Suzanne Morsfield.
In the latest episode of the hugely popular Cummings Pepperdine's Crypto Questions, we talk to Suzanne Morsfield from Lukka.
Suzanne gives an overview of the Fair Market Value for Crypto and the considerations needed. She covers the following:
· Crypto Ecosystems snapshot
· Trusted data foundation
· Fair Market value
Find out more about Lukka, visit
You can connect with Suzanne on LinkedIn here
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Cummings Pepperdine is a unique leading legal advisor on crypto and alternative assets, advising a large and diverse global client base and the only firm to provide a complete solution building on the three key areas of law, tax and FCA with legal underpinning at every point.
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Well, thank you everybody for joining us for this issue of the Cummings. Pepperdine Crypto questions are hugely popular podcasts that we do. I know I spend the beginning of every podcast saying I'm delighted to have so and so and you know, whoever it is. And I have to say we've been extremely lucky with the people that we've had, um, coming on each podcast. So today we have somebody who is gonna talk about what is an absolutely key issue in all markets. There's been a lot of regulation and time spent talking about how you actually provide a proper valuation for assets, whether they're liquid, illiquid, traditional, non-traditional, and I don't think that you can have a proper free exchange or market. Unless you have a proper independent valuation of your assets, you know, you know what they are, but what you don't necessarily know is how much they're worth. And that is particularly true, I think, when we talk about, um, cryptocurrencies and digital assets as a whole. So how do you find somebody who can independently give you a fair market value for your crypto? Which not only do you if you're a fund manager or similar, no is correct based on your knowledge of your industry, but also one that your investors can rely on and feel that, yep, they've got the right answer there. Nothing's being manipulated. It's independent, it's third party, and it truly is fair. It truly is the market value. So with that introduction to this key issue, I would like to introduce you to Luca and at Luca I would like to introduce you to the wonderful Suzanne Moorefield, who's the head of accounting solutions for the whole globe. Who's gonna tell us all about how you can get a fair market value for your crypto assets? Third party independent, fair. And one that not just you, but your clients will be able to rely on. So, Suzanne, tell us about Luca. Tell us about you and tell us about how you go about getting something correct in this hugely complicated, volatile, and difficult market.
Suzanne Morsfield:It's, it's a great question and I really am delighted to be here today. Thank you for inviting us. Thank you for inviting me. Um, you, you, you hit all the high points already, so you've set me up so beautiful.
Claire Cummings:Yeah, we let people off. Now. They can get, they, they can go.
Suzanne Morsfield:Yes. That's it. We're done. Thank you. So, um, but it, it's really, I, it's, it's such an important question and feel free to interrupt me and ask questions as, as you'd like. So I'll tell you, uh, a little bit about Luca and a little bit about myself and then let's. Just go right into it. So, yeah, since 2014 in the crypto assets valuation space, actually this whole time, and we are a, what we, we are a data and software company and, and really devoted to institutional grade, high quality, uh, approaches to. Helping any type of entity that's engaged with crypto assets. And we have some of the, the largest names out there and we have smaller, you know, entities out there. But we really are all about doing it in the most trustworthy way, in ways that align with US GAP or I F R S accounting standards with tax, what tax authorities globally need. And as you said, it's, it's, there's two sides to this coin for your audience, which is your, their own internal sort of comfort. Level with the valuations that they have. Yeah. And their crypto assets and their investors. Like, there has to be real trust, real quality, real rigor so that both sides of the coin really know that, that they're getting good numbers. And, and, uh, part of really the main reason I joined Luca is I come from a very, very traditional. Finance and accountancy background is because of the quality and the rigor I saw around all of this, and so, so talk a bit more
Claire Cummings:you, anybody? Yeah. I'm not, cause it's a podcast, but you may be able to see us lovely ladies and also the slides. So if anybody can,
Suzanne Morsfield:if anybody's got a joy washing, you know, I joke about the fact that, that I'm old, you know, and that's why my, my list of all the kinds of companies I've worked at, the companies I've worked at is long, but I've really done a 360 sort of view. Um, well also
Claire Cummings:you're, and you're Dr. Mok, aren't you? I
Suzanne Morsfield:am. I also managed to do a, a, a PhD in accountancy in Texas. You know, along my journey and was a professor for a while in the us. That's amazing. Now do some guest lecturing at London School of Economics. Um, well, because despite my glaring American accent, I do live and work in London. So I've, I've been at, at a big four accountancy firm. I've been on the buy side at, at. JP Morgan on the sell side at Morgan Stanley. All, you know, in, in the sort of the teams that were analyzing financial statements to make decisions around trades, to make decisions around valuation. You know, I was, uh, spent a lot of my career, um, looking at that. I also worked, I. At the International Accounting Standard Board as a staff member leading projects there. So I've been inside the actual rule makers to understand sort of their view and how, how that works,
Claire Cummings:how they, how they tick, what they're looking for, and say, yeah,
Suzanne Morsfield:and why is, why what Luca is doing that aligns with those principles in those, in those regulations is really important. I, I have such an appreciation for that side of the story. And again, well, I think
Claire Cummings:particularly, I mean, You know, I think it's a broad brush state. Everybody says crypto is not regulator. Well, you know, we know that's not true. Yes. In every sense, you know? Yes, you can be in, you can be out. There are different ways you can be in that. Yeah. But if you do sort of take this, this sort of the underlying premise that there is worry, there is fear, and that is justifiable because of a lack of regulation. If you therefore take what the regulators are after when it comes to. A fair valuation, and I'm particularly thinking in the UK actually about funds and, um, the need for the valuation policy to be correct, you know, to be correct. It's something that's so integral to the regulated markets. Why the hell shouldn't it apply to the crypto markets, whether they fall in or out, or they're captured by the different little nets of regulation or not. It's got to, it's gotta be important, hasn't it? It does.
Suzanne Morsfield:And, and a really interesting thing that I participated in recently is just a quick background, is, is the Alternative Investment Management Association has a good Yes. And, and they're updating and it's forthcoming, I think by the end of this month, early May, they're updating the valuation Good Practices Guide, um, on a bunch of dimensions including E S G, but also how, how to approach fair value and fair and, you know, Of crypto assets or digital assets depending on which terms you like to use. And so I was fortunate to be part of a wonderful group of folks that have Oh,
Claire Cummings:were you on the working with the aim of working group for
Suzanne Morsfield:that? Yeah, I was that working group and so I'm, I'm a very careful They all good
Claire Cummings:aim actually, aren't they? I mean, they do. The thing I like about 'em is that they understand what we in the industry are going through on a day-to-day basis and try to bring it all together and make
Suzanne Morsfield:it work. They do, and it includes the points you hit on about like, if you're using a third party provider, what's the due diligence that should go into it, what you should be looking for. And you know, really as, as, as we talk about this ecosystem and then we talk about Luca, you know, what you see is you, is the need for trust and rigor and approaches that literally, uh, would align with. That Luca is so committed to, and I can talk about how we do that. One of the things we do is we do build on this, this we get at any attestations, we voluntarily go out and get, so in the States there's what we call the A I C P A SOC one and two Attestation that just shows, yeah. It's detailed auditing of our processes, our approaches to coming up with these third party prices. Then we've also done recently in passed the IOSCO sort of standards as well. And so we're always, always looking for ways to submit ourselves.
Claire Cummings:Benchmark. Give yourself to then take those and then benchmark. Exactly. Exactly. Exactly. So let's, let's have a, so let's move on and have a look at, you're very kindly in your slides, given an overview. There are, there are three issues we put in here for consideration. One is looking at the E, the crypto ecosystem now. Yeah. One is the trusted data foundation and the third is how those come together to Yes. Fair market value. And we've also got a slide coming up, which is my favorite. So I'm, yeah. Dorky me. Slide 10. Let's, let's go through these slides. We'll talk about, first of all, about how you and I see the, the ecosystem at the moment, because, Without a strong ecosystem, we don't get strong players, do you?
Suzanne Morsfield:No, no, it's so true. And, and when we get to slide Ted, you know, so, so, you know, at this point, you know, I can lay out, here's some facts about the intricacies, the things, the challenges in this ecosystem, which is there's hundreds of exchanges, hundreds of marketplaces, All or most of which are completely unregulated and they're scattered around the world. And I can trade in this one on this side of the world and you can trade in this one on that side of the world. And so there's, there's just a whole different sort of kettle of fish there. They operate 24 7. So, so there's no market close. So when am I striking nab? Yes.
Claire Cummings:Yeah. So how do you much market if there is no market? How do that
Suzanne Morsfield:Exactly. Yeah. Um, there, they trade in extreme fractional quantity up to like 16 decimal points and very volatile. And, and it's then there's volatility in dynamics that it's just a very dynamic market. So, so, and some trade without a fiat currency on the other side. So I'm trading one crypto asset for another. How do I get then to fair value in US dollars in euro in pound sterling in. Want, what? How do I get there? Yeah. And, and so you need help in tools because this, again, this is just laying out some of the things that are different about this marketplace than, and, and again, we, we see it mapped again, it's slide 10 with, with, like you said, the ticks and the crosses. But yes, number
Claire Cummings:10 my favorite. Yes, yes.
Suzanne Morsfield:And it's, it's just a massive marketplace. And like you said, it's, it's volatile,
Claire Cummings:unique. It's interesting, isn't it, because it's massive. But then if you were to, if you were to compare. The crypto market, the, so we've got up here total trails paving map against all entities. Yeah. Hundred 31,000 plus. Yeah. Yeah. Now, if you were to compare currency pairs, you are so dwarfed, you're not even a, you're not even a drop in the Atlantic Ocean, are you?
Suzanne Morsfield:Yeah, it's true. It's very, very
Claire Cummings:true. But at the same time, I mean, I haven't got the figures. I dunno if you have, I don't. But I just wonder, eight years ago, When, which is when actually I first started sort of properly at advising on crypto. I'd been interested in it before then, but that was when I first advising. I wonder what the total trading pairs mapped both all entities for crypto with a bit at that point. And I wonder how you could take that to project the future. I, I, I'm guessing you got team analyst who could do that. So. Yes, maybe that would
Suzanne Morsfield:be a follow up. It's a great follow up question that I'm happy to, to look at and come back to you, uh, look
Claire Cummings:at that. And then what we could do is maybe we could just stick it out to, you know, as a, as a LinkedIn or something for, you know, or, or, or on our mailing lists.
Suzanne Morsfield:Absolutely. Be happy to do that because what's interesting is I have to, every time I give this, Chat about this or show the, it changes to update the slide. Like it's like, you know, even since I started Luca two years ago, I mean this number has, these numbers have just,
Claire Cummings:well, even since we started talking about doing this um, podcast a few weeks ago, you've had to send me some updates, so, yeah. Yes.
Suzanne Morsfield:Yeah. Yeah. So it's, it's a constant sort of update. You're right.
Claire Cummings:Which is in, which is what's so interesting. Yes, I have say,
Suzanne Morsfield:yeah. Yeah, it is. It, it, it, it's part of like, you know, I, I've loved going from sort of a very traditional background as you could see into this world where you still need all the traditional experience and expertise, but you're in a, you know, a just a really dynamic, interesting environment to apply all of that too. And, and that, you know, kind of leads nicely into the, into this sort of sense of you need a trust, you know, trusted partners to work. With and I, it's why I think, you know, sort of those of us with the traditional background are really useful and, and good to see and have in this, in this industry because you know that we're bringing sort of the true, you've got those
Claire Cummings:training and background that you can then apply to something new. And I just think, you know, the application of something new is itself an interesting one because you can't just sort of te it doesn't work if you just take this clunky thing and stick it onto crypto, but, The principles yes, are, are, are fair across all walks of life. So you can take the principles and with a background workout,
Suzanne Morsfield:how to use them. That's right. That's right. And what's interesting about the fair value accounting is it is, it is one of the last accounting standards that the, that the fasb, the US gap and the I for s folks work together on jointly. You know, there was a sort of a few of them where they literally crafted them together and very.
Claire Cummings:Yeah, it's very, I, I always, I always think fair value. You start to get into the realms of sort of dark arts and Harry Potter cause
Suzanne Morsfield:it, it's a wonder. I, I love, I've grown to love this standard because the principles in it are really just very, very sound and they give you, Room for management and professional judgment, but with guardrails, there's real sound guardrails on the principles in the in, in the standards for fair
Claire Cummings:value and it's, and I'm assuming not what we're talking about as well as something which is very applicable for different types. So you may have, let's go back to a fund management. Yeah, yeah. You may have a single manager where if that manager goes under a bus, the value of the investment management firm. No matter what's in place, the risk management is gonna go down. Yeah. So therefore, you know, the, the, you could argue that the fair market value of what's in a fund goes down because it could just be sitting there not being traded in or out correctly. That's very different to say, an investment management firm, which is systematic or has a whole stable strategies and managers and analysts in it across it. So again, the fair market value has to have those very. Almost sort of nosy, personally elements to it as well. So yes. But again, within the guardrails.
Suzanne Morsfield:Yes. Yes. Yeah. Completely agree. I think that's a, that's a great example that you need that kind of flexibility for the role of valuing, but at the same time, you need the guardrails. Um, yeah. So
Claire Cummings:you, yeah. To, to, to stay within a sentence, to keep it from going
Suzanne Morsfield:completely off the rails. So, and, and to have that trustworthiness as we've talked about for both the investor side of the coin. So
Claire Cummings:let's move on now. For those of us who are watching, you'll be able to see, we've got up here a slide, which has types of transaction. And then considerations. And I think that that's, this will be a very nice one to just, maybe you could just pick Yes. A coup, a couple of them talk through, because I think this gives us some very nice real life examples of things that we need to consider.
Suzanne Morsfield:Yes, it's, yeah, I'm happy to, I mean, one of the points of this slide is to say, here's a bunch of different transactions. You can engage different types of transac, and this is just the start, isn't it? Yeah, and it is just the start
Claire Cummings:six transac, the six types of transaction, crypto holdings, crypto investments. For example, a Dow might be one, staking commerce, general reporting, and other use cases. Now that is really just a very slight and short scamper of the surface. So with those six ones, those six types, Let's talk about some considerations. Absolutely. This high level scamper over the surface, this consideration.
Suzanne Morsfield:Yes. Great. Well, and, and before I do that, one thing I would say is if, if you could see this slide, you'd see fair value is in every single one of these. Yes. Fair. In some way, shape, or form. And so if someone's like, well, why is it so important? Or whatever, I'd go, well, let, let, was
Claire Cummings:it not important actually?
Suzanne Morsfield:And a lot of times people, um, stop with, including some of the regulators stop with thinking about crypto as the holding side of it. I hold it and then maybe I'll sell it in the future. And so there's fair value considerations there. And they stop there. And, and, and I'll start there, but I'll say as we go down, the, the reason I show that list of transactions is there's all different things that are happening out there with cryptocurrency. Yep. We're not just all holding it, we're we're, sometimes we're using it in commerce, sometimes we're using it to generate some sort of yield by using the staking type of things. And so let me start with the holdings though, because that's, that's the. The simplest place to start. In a way, it's the most common place to start. And depending on what type of entity is holding it, you have different potential accounting rules and accountancy rules around fair value. So if I am, um, the world famous, of course Tesla, and I'm holding it, I'm an automobile company, I have different rules around the fair value.
Claire Cummings:So you Musk, you have different rules around everything. Well,
Suzanne Morsfield:that's true. That is true. Yes. You
Claire Cummings:have space to travel at your fingertip.
Suzanne Morsfield:Exactly. Exactly. Versus if I am a, a hedge fund and I'm, and I'm trading it or a broker dealer and I'm trading it regularly, um, then I, then I, in that case, I get to mark to market. I have to mark to market. I don't just get to mark to market. Yeah. If I'm Tesla right now, under US rules, I don't mark to market every day or even every period. I put it on at cost. Yep. And then if it, if the value goes down below, I have to write it down and impair it. And under current US rules, I have to keep it impaired until I sell it. I if the, if the value recovers, I never get to mark it back up. And that's something that's caused so much controversy and, and a lot of discussion about, is that fair? You know, to do it that way. If, if you have this asset that actually. Is, it should perhaps be more marked to market consistently, but right
Claire Cummings:now, yeah, but you've gotta find the market. Market. It depends
Suzanne Morsfield:on what entity. Um, And so that, that will change in the, in probably next year, at least in the US markets where you get to mark to market many, many of the crypto, crypto assets. But right now, that holding it depends. And so you, but the thing is, that's important to realize, mark, if I'm marketing to market or striking neb, it's clear I need fair value there. Yes. Yeah. To get there every day. But if I'm Tesla and I only write it down, When do I use fair value? Well, guess what? You use spare value to do that impairment test and that impairment test is required. And so I take what I paid for at the cost basis and I compare it to fair value at regular intervals and that those intervals vary by company. But I need fair value even to, even if I'm Tesla, something you've
Claire Cummings:got to come back to. Yeah. Cause you can't mark an impairment. Impairment
Suzanne Morsfield:against it's head everywhere, you know? Yeah. And then, you know, in, in some of these other sort of set settings, you know, if, if I am using it in commerce using crypto and commerce, the, it becomes really interesting because I, if I denominate my invoice in cryptocurrency, so I say I'm selling you advertising services or Lucas software. For Bitcoin for a year. I'm ma I'm literally making up numbers here, but I end up having what, under Under accounting rules? In both. In both I F S and US Gap. I have an embedded derivative cuz I'm, the value of the invoice is shifting. Variable Yes. Value to keep track of that. My invoice doesn't stay at. 20,000 pounds. It varies because I, I, cause I put the invoice in Bitcoin, so I need fair value. Give was from Bitcoin,
Claire Cummings:well, a couple weeks ago. It's probably, yeah. Less than Bitcoin. Yeah, exactly.
Suzanne Morsfield:Exactly. Yeah.
Claire Cummings:But you have been paid in Bitcoin? Bitcoin, which is now.
Suzanne Morsfield:Up a little bit. That's it. That's it. And so, so there's a couple examples of where, you know, fair value and considerations around it. And even you as an investor looking at a company's financials, if you suddenly see them have embedded derivatives and they've never been had derivatives before. You can read in the notes, and it's important to read the context around them. It can be just simply because they are buying and selling things and in, and the invoices are, are denominated in crypto. And it's just a, it's a fascinating use case, you know? Um, So this other aspect of it that we've, that we've touched on is, is just literally sort of how it gets classified in the balance sheet. Varies. Again, it varies under sometimes between US gap and I f s and it varies sometimes between the type of entity you are. So Tesla has to treat it as intangible, you know, a a a hedge fund get, gets to treat it as an investment that's marked to market. Broker dealers often get to treat it as inventory.
Claire Cummings:And I think this and this slide, I've just, I've just moved to now slide nine. Yeah. Sets that out very clearly, sort of. Yeah. Well, you've got intangible, I think I would probably say intrigue because it's so, yeah, yeah. You know, but yeah. Not in the sense that, um, there's anything nefarious about it. Thanks. But the fact that it's an intriguing area to look at to get it right and to get it fair.
Suzanne Morsfield:I love that. I love that. I'm gonna, I'm gonna steal that from you. We got, we got attribution player with attribution. Oh, thank you
Claire Cummings:very much. Thank you, Ola. Now, sorry, this isn't, let's, it wasn't slide 10, I think it's actually slide 11. Slide 10. We talk here, we've, we've sort of recap what we said before about the markets being open every single hour of the day, not being regulated, that you don't always know that with. Most of the time, but not always. You don't know the information is actually what information you can rely on. Yes. And you're not always entirely sure who the principles are or their assets, so Yep. If you compare that, sorry, it's Now we take that and we look at those four points. The crypto, now crypto is open 24 7. Equities aren't all the other issues that we've talked about, consistent regulation, consistent and reliable information. And consistently identifiable counterparts or principles. Yeah. You do get inequities. You don't always get in crypto. You might do sometimes, but you don't always. That's right. And I think if we actually, if we go back to the word intrigue. Yeah. This, this is a nice way of showing where your work come comes in. And how challenging it can be to find what is fair and therefore the need to go back to something, to, to principles which are proven and proven to have, have worked because yeah, it is in, it is intriguing.
Suzanne Morsfield:It absolutely is. A hundred percent. And, and this slide sort of shows you why you need. Specialized tools specialized, you know, experts who literally can grapple with those differences between crypto and equities. And in an ideal world, you know, you'd have people that actually understand the equities markets really well to know how to leverage what is useful. And what is reliable and the principles there, and apply them appropriately to crypto. You don't always try to stick the square peg into the round hole, but
Claire Cummings:you know, nice. You have to be inventive and flexible and creative, and you have to be almost sort of courageous in a way that you mold your, your thinking to be more flexible. That's it. But, but you can't
Suzanne Morsfield:go too far. That's it. And that's where, you know, when we talk about sort of Luca's approach, we have a, you know, what we call our five step approach to fair value. You'll see us drive right through the middle of the principles in US GAP and I F R S with, with insight and, and creativity that isn't outside the guardrails, but is bringing the, you know, the isn't find the
Claire Cummings:subjective. Yes,
Suzanne Morsfield:exactly. Yeah. And bring, and, and we spend a lot of time with the, with the key audit firms and key academics and the standard setters and regulators, and talk to them about our approach and how it aligns with us Gap. And I, for us, and, and literally there's not any question about our, our alignment with that and our approach that, like I said, Uses the, that it is a principles based standard, but stays well within the guardrails and uses that kind of, um, you know, innovative approach to just approach dealing with these, these orange crosses, if you will. So, yeah.
Claire Cummings:And actually the next slide, slide 11. Yes. I think actually if we look at that, that that moves on Twitter as well, doesn't it? This is, this is a nice way of moving on to. To what we're talking about. And I think, I think it's, I think your five step approach here as well. Yes. Pretty
Suzanne Morsfield:graphics by the way. Oh, great. Yeah. Yeah. I have no, no creativity on that front. I get all the credit to our, to our marketing department for this. So what of the things we talked about? Yeah. That there's like over 360 at the moment, sort of possible places you could trade. Let's just, let's just pick Bitcoin. This is a hypothetical example of Bitcoin. Yes, yes. And what we do is our starting point in step one is taking all that raw data. We standardize it, we normalize it. You know, there's different tickers for bitcoin on, on every different exchange than, oh, there are, yes. You know, and we map it all and, and, and normalize it, standardize it. And what we also do is narrow down from 360 plus exchanges to, in this case we're at 14, that are ones that meet information quality, you know, reliability,
Claire Cummings:kind of, so you're sifting through to get to an effect, take yourself to be able to, on the previous slide, take the XS and turn 'em into ticks.
Suzanne Morsfield:Absolutely. That's it. Yeah, and, and we're looking at things like, do they have a M L and K Y C requirements? Like we look to this is that example of looking to traditional approaches and saying these are useful and helpful and actually enhance trust and reliability if we apply them in this setting. So we've narrowed it down to 14 possible exchanges at the moment, and we're always evaluating. New exchanges and existing exchanges, are they still high quality? Are they still giving reliable information? And we're running not sample analytics, we are running analytics across all the population of the data. Real time, not paper. Sure. There's not wash trading going on or, yes.
Claire Cummings:Do you know what? I would like to introduce you to art checks, if I may. This is a UK institution exchange that I'm on the advisory board of. Yes. I think, um, I, I think that you, you may wanna either slip minute 15 or take someone out on replacement. So anyway, that, that's related.
Suzanne Morsfield:Okay. Okay. Good to know.
Claire Cummings:You put two ladies together, we cannot help making introductions in marketing, can we?
Suzanne Morsfield:That's great. I love it. Um, so once we've standardized all of that down, we, and, and you've got sort of, you know, step one is, is bringing all of this into a really solid database and, and then what we do is turn to the accounting rules, you know, an I F R S and US Gap. And what it says is you to get to fair value, you know, especially for actively traded. Crypto assets. We need the exchange or the market where the highest volume and frequency of trades is occurring over there. I need to, under the principles I need to find the market with, with the reliable market. What were the
Claire Cummings:Yeah, I, I we, we, we did a podcast recently about liquidity in crypto. Yes. Yeah. And I said in that, I brought everybody senseless by saying, yeah, you don't have liquidity, you don't have a market.
Suzanne Morsfield:That's it. You know? That's it. That's it.
Claire Cummings:Liquidity. Liquidity, liquidity. That's
Suzanne Morsfield:it. And, and so that's, so in steps two, three through four, what we're doing is looking at the 14 exchanges in at, for a given crypto asset. In this case Bitcoin at a given time and day. And we can talk about how you choose that time and day. Uh, but we, you have to, you know, our customers pick that and say, we need, we need to strike nav now. And then we go and look at what, where the volume and recency of frequency of trade is happening of those 14 markets and say, Here's, here's the exit price. Cuz the counting rule makers say you actually don't use an average. You need an actual price from an actual market at the time and date. You want a fair value. And so our methodology brings you to that point where you can identify principle market for your auditor. They can see it. There's no black box. We show. How you got there. They can show it to the auditor investors even and say,
Claire Cummings:and dynamic, which you got put below as well. Yeah.
Suzanne Morsfield:Yes, exactly. And then here's the price. You can even use our product to have, have it in rank order, all 14 of those exchanges. We could show you the volume and the price at the time and day. And you can see how and why Luca got to that price. Show it to your auditor, show it to your investors if you want, and there's complete transparency available, um, for how you got to that number. So circling back to your point about the reliability and trustworthiness of the information of the price, of the fair value, we, we are very, very, Very transparent and very audit friendly and audit ready for everyone. So you get that exit price and it's, it's one that actually, you know, someone executed on. And in this case, again, hypothetical, the, that the algorithm, you know, the Luke algorithm brought you to Kraken as the principal market, and here was the exit price. Of 26, 398 in US dollars. Then you take P times Q, how many Bitcoin do you hold here at, at this time of day that you're striking nav and you end up with your fair value then for your balance sheet. Um, and, and that's sort of the steps. And then it just does all of that. We do all of that for you. And also there's a whole governance around the pricing mechanism here. So we have a price oversight board. You can submit a price challenge. All of the things, again, in the aim of good practice guide, are all operating within the Luca setting for coming to this.
Claire Cummings:Yeah. And they, and that's the thing, isn't it? As I was saying, you know, you've got, we've got these principles that work. Yeah. Why not draw on them? Cuz we know they do. Right?
Suzanne Morsfield:Yeah. That's right. And then, you know, I wanted to leave time if you had any more follow up
Claire Cummings:questions. Exactly. Well, I've, you know, I have to say I've been quite engrossed. I haven't asked that much, you know, cause I sort of chatted have gone along, so I just wanted to go here to say that. Yes, yes. So, yep. If anybody is watching again here, slide 14 again, you see that five step process in a bit more detail. And then, and then let's do some more Luca marketing. Tell us about Luca Market. Sure,
Suzanne Morsfield:sure. Ok, sure. So the assets that we cover with this particular, um, product is constantly growing. So, and, and, and what, what we talked about in this sort of five step approach is really about the actively traded. Sort of crypto assets that meet a threshold for that. We also though help customers as you go down from level one in the into use accounting, you know, so to speak, to level two, to level three, we can help with with all of the levels. And we're constantly building new functionality around our fair value approaches to just. You know, help, even if it's less frequently traded and let's say there's not an active market, you know, to your point, yeah. How do I come, come to a fair value? One of the things you know, the accounting rule makers allow you to do is look for a comparable asset. That is actively traded and use that as a starting point. And you build a model, you know, that lets you start with an actively traded comparable asset. And then you do, you know, you use your own insight internally in your organization. To, you know, maybe put a discount for lack of liquidity, et cetera on it. But you have a starting point that you're allowed to use as part of your model. And so Luca also can help you do that. We can help you identify comparable assets. We have a, a separate product that helps do that, and it works together with this Luca Prime pricing engine, uh, to get to, to some kind of fair value. That doesn't maybe have an active market, we can help with
Claire Cummings:that as well. And I would just quickly, as ever at my legal bit, which is, it's all very well happening, all the happiness, but you've gotta get the lawyers involved. You've got to have people agreeing that this is, this is what they want to use, this is how they want to use it, and they're gonna abide by it. Yes. Because you know, nobody really wants litigation, so it's best to just talk it out, document it upfront. Off you go. Everybody's friends and we're all working together.
Suzanne Morsfield:That's right. That's it. You're right. That's a great closing point. Like you really do need to look at it and to, and to think about, you know, to work through our steps and work with us and, and we're very, very, um, We're very good about talking through and, you know, working with the lawyers and everybody, so that, and auditors, sometimes we speak to the actual audit firms and if they have questions about the method or whatever, and we're, we're really, really happy to have those conversations.
Claire Cummings:Yeah, I think you've got to talk these through things through, because, you know, when you work, you know, it's very easy to, you know, we find this in particular, you know, you've got, you know, the lawyer, the client, the relationship, but actually it's not about that. It's about, you know, It's all about having a good chat and sorting it
Suzanne Morsfield:through. That's right. That's right. Yeah. So on that one, a provider that's willing to do that. Yeah. You know, and, and that is, that's something to also, to look for, I think, is who's, who are the service providers, who's really were willing to have those conversations. Yeah.
Claire Cummings:Yeah. Now, so Dr. Suzanne, if I may call you that. Sure. My last question for you, for anybody again who, because. I'm running the IT on this and I'm not in the slightest bit certain. If I'm very dubious, the visuals are gonna work here. Yes. Yes. So excusing my incompetence on anything to do with I with it in case people can't see. What you've got up here is your email address and your website. Absolutely tell the, tell the listeners what's the website.
Suzanne Morsfield:Sure, sure. So go to the, our website is, you know, www luca.tech, t e tech h. Perfect. So it's, it's, and um, we have all sort, we actually have an education section up there, so we, we have. Small, uh, you know, our white paper that is published in a peer review journal that documents, you know, how the academic along, you know, and Luca came up with this approach. So, so there's that up there. There's also shorter articles around identifying principal markets and some of the. Thoughts around that. Our whole, our data team has written some one of her articles up there as well. And you can also see the variety of products that we have. Say,
Claire Cummings:open it up.
Suzanne Morsfield:Connect with me on LinkedIn and, and, and chat with me anytime. I'm, I'm really, really an available
Claire Cummings:person. And then my really last question, this is my very last question. This is for everybody. This is, this is my spur of the moment, competition moment. So to demonstrate that with the technology we have nowadays, the ecosystem for everything, it is possible to hold business meetings anywhere in the world. Mm-hmm. Let me disclose that. I'm actually on holiday today. Oh, flying back later. But a bottle of champagne to anybody who can spot the moment when the Spanish waiter turned up and.
Suzanne Morsfield:I did not, I have to say I missed it, so. Oh right. Did not get the champagne though. I love that. That's wonderful.
Claire Cummings:So I'm back in London this evening. Anybody who can spot the champagne email, just go onto our website, comings pepperdine.com. And Suzanne, may I go out there now and make a suggestion to everybody? Yes. You, me. Open bar, five o'clock one evening, everybody come along and talk crypto with us. How does
Suzanne Morsfield:that sound? That sounds wonderful. I'd be delighted to do that. Right?
Claire Cummings:Really delightful. We'll get the date out. I'll have copies of our Cummings encryption re forwarded by Lord Davy going around to every single MP this month. I'll have copies of those around so then we can, we can all enjoy a glass of champagne regardless of.
Suzanne Morsfield:Whether you missed the Spanish, you know, waiter or not, so that's great. Exactly.
Claire Cummings:Regardless of the bill for my Spock water, such tech ech. And cummings.com. See you all soon. Bye-bye.
Suzanne Morsfield:Thank.
