JANUARY/FEBRUARY 2019ValExCov_J-F_2019_Final.indd 12/19/19 8:59 AMPRSRT STD U.S. POSTAGE PAIDSAL T LAKE CITY , UTPERMIT NO. 6563Association NewsThe Association News contains valuable information about the Association and its members. The Association News is free for members and non-members alike.The Value Examiner®The Value Examiner is an independent, professional development journal dedicated to the exploration of value and its ramifications for consultants. It is the singular source of timely, technical, in-depth articles written for consultants by practitioners and academics at the top of their respective fields.QuickRead®Readers of the weekly QuickRead will come to appreciate it as a primary source for current news and information highlights in areas of interest to the financial consultant, and for immediate use in their practice. Journal of Forensic and Investigative Accounting (JFIA)The JFIA is an open access journal showcasing articles which focus on creative and innovative studies employing research methodologies; improve forensic accounting research skills, tools, and techniques; and stimulate discussion and experimentation in instructional means in the fields of forensic accounting and fraud.Around the Valuation World®The Around the Valuation World webcast is the next generation method of obtaining the latest updates, news, trends, and activity occurring in the rapidly evolving business valuation and financial forensics profession. Each month, a team of industry experts cover the profession’s leading publications and deliver an online summary of all you need to know.To learn more about these publications and how to subscribe, visit publications or call Member/Client Services at (800) 677-2009.Build Your Reputation Authoring Articles for the Industry's Publishing JuggernautNACVA stands alone from other professional valuation organizations in its commitment to publishing.Write an Article, Earn CPE, and Gain RecognitionMany of these publications give authors the opportunity to get published, earn valuable CPE credit, and share their expertise with their peers. To learn more on this opportunity, ValExPubAd S-O18.indd 110/11/18 1:44 PMA PROFESSIONAL DEVELOPMENT JOURNAL for the CONSULTING DISCIPLINES on the coverin this issue…t h e v a l u e e x a m i n e r JANUARY | FEBRUARY 2019 31324JANUARY/FEBRUARY 2019ValExCov_J-F_2019_Final.indd 12/19/19 8:59 AM6VASICEK AND BLUME BETAS: BACK TO THE FUTURE (PART I)By Diana Raicov, MSc and Richard Trafford, MSc, FCT, CVA, CFE, MAFFDespite the vociferous and sometimes fractious scholarly controversy surrounding its use and effectiveness, the CAPM Beta is still widely used as a measure of systematic risk in business valuation, financial performance evaluation, and the fair pricing of securities. This article explores the use in the U.K. and assess the implications for the broader U.S. market.GDPR COMPLIANCE LOWERS BREACH INCIDENTS: AN INTERVIEW WITH LEADERS IN PRIVACY AND DATABy Nancy McCarthy, Senior Editor, The Value Examiner, with: Tom Garrubba, Senior Director, Shared Assessments; Adam Laub, Senior VP, Product Marketing, STEALTHbits Technologies; and Christian Vezina, CISO, OneSpanIf data is the new currency, then privacy and data protection is the top concern of organizations around the world. The European Union (EU), in an effort to increase the protections on the privacy of the data belonging to EU residents and organizations and individuals doing business in the European Economic Area (EEA), enacted a new set of data protection regulations, The General Data Protection Regulation (GDPR), last May. This article highlights how customers privacy concerns are driving the need for regulation around the world.Association NewsThe Association News contains valuable information about the Association and its members. The Association News is free for members and non-members alike.The Value Examiner®The Value Examiner is an independent, professional development journal dedicated to the exploration of value and its ramifications for consultants. It is the singular source of timely, technical, in-depth articles written for consultants by practitioners and academics at the top of their respective fields.QuickRead®Readers of the weekly QuickRead will come to appreciate it as a primary source for current news and information highlights in areas of interest to the financial consultant, and for immediate use in their practice. Journal of Forensic and Investigative Accounting (JFIA)The JFIA is an open access journal showcasing articles which focus on creative and innovative studies employing research methodologies; improve forensic accounting research skills, tools, and techniques; and stimulate discussion and experimentation in instructional means in the fields of forensic accounting and fraud.Around the Valuation World®The Around the Valuation World webcast is the next generation method of obtaining the latest updates, news, trends, and activity occurring in the rapidly evolving business valuation and financial forensics profession. Each month, a team of industry experts cover the profession’s leading publications and deliver an online summary of all you need to know.To learn more about these publications and how to subscribe, visit www.NACVA.com/ publications or call Member/Client Services at (800) 677-2009.Build Your Reputation Authoring Articles for the Industry's Publishing JuggernautNACVA stands alone from other professional valuation organizations in its commitment to publishing.Write an Article, Earn CPE, and Gain RecognitionMany of these publications give authors the opportunity to get published, earn valuable CPE credit, and share their expertise with their peers. To learn more on this opportunity, visit www.NACVA.com/article.ValExPubAd S-O18.indd 110/11/18 1:44 PMTraditional valuation methodologies rely upon an evaluation of the underlying financial and operating fundamentals of a company or specific assets to assess the likelihood of expected cash flows, and hence, value. Financial securities are valued by risk adjusting contractual payoffs that may occur in the future. However, the fundamental aspects of cryptocurrency and related blockchain instruments are assessed and valued differently. This article describes what may be the currency of the future.CRYPTOCURRENCY: THE FUTURE OF CURRENCY OR TWENTY FIRST CENTURY MYTHICAL BEAST?By Neil Beaton, CPA, ABV, CFA, ASAACADEMIC REVIEWACADEMIC RESEARCH BRIEFSBy Peter L. Lohrey, PhD, CVA, CDBVThe purpose of this column is to provide the readers of The Value Examiner summaries of contemporary research in business valuation and forensic accounting. 28A PROFESSIONAL DEVELOPMENT JOURNAL for the CONSULTING DISCIPLINESEDITORIAL STAFFCEO & Publisher: Parnell BlackSenior Editor: Nancy J. McCarthyAssociate Editor: Lynne JohnsonEDITORIAL BOARDChairman: Lari B. Masten, MSA, CPA, ABV, CFF, CVA, ABAR, MAFFPast Chairman: Michael Goldman, MBA, CPA, CVA, CFE, CFF Ashok Abbott, MBA, PhDEric J. Barr, CPA, ABV, CFFJohn E. Barrett Jr., MBA, CPA, ABV, CVA, CBAGary W. Baum, MBA, CPA, CVA Neil J. Beaton, CPA, ABV, CFF, CFA, ASARod P. Burkert, CPA, ABV, CVA, MBALorenzo Carver, MS, MBA, CVAWolfgang Essler, CVA (Germany)Richard W. Goeldner II, ASA, CBA, CVAJudith Heim O’Dell, CPA, CVAAndrew M. Malec, PhDDanny A. Pannese, MST, CPA, ABV, CVA, CSEPKevin Papa, CPA, CVA, ABVDonald Price, CVA, ASAAngela Sadang, MBA, CFA, ASAKeith Sellers, CPA, ABVRichard Trafford, MSc, FAIA, FCT, CVA, CFE, MAFF, PGCLTHE, FHEA (U.K.)Sarah von Helfenstein, MBA, CVATodd Zigrang, MBA, MHA, FACHE, ASAThe Value Examiner® is a publication of:National Association of CertifiedValuators and Analysts® (NACVA®)5217 South State Street, Suite 400Salt Lake City, UT 84107Tel: (801) 486-0600, Fax: (801) 486-7500E-mail: ANNUAL SUBSCRIPTIONUnited States—$215International—$255 U.S. FundsFree to accredited university librariesThe Value Examiner®departments4 JANUARY | FEBRUARY 2019 t h e v a l u e e x a m i n e rSUBMISSION DATESIssue Submission Dates Publish DatesMay/June Apr. 15 July 1, 2019Jul./Aug. Jun. 15 Sept. 1, 2019Sept./Oct. Aug. 15 Nov. 1, 2019Nov./Dec. Oct. 15 Jan. 1, 2020ALL SUBMISSIONSThe Value Examiner is devoted to current, articulate, concise, and practical articles in business valuation, litigation consulting, fraud deterrence, matrimonial litigation support, mergers and acquisitions, exit planning, and building enterprise value. Articles submitted for publication should range from 500 to 3,000 words. Case studies and best practices are always welcome.SUBMISSION STANDARDSAll articles should be thoroughly edited and proofread. Submit manuscript by e-mail (in standard word processing format) to Nancy Include a brief biography to place at the end of the article and a color photo of the author. See authors’ guidelines and benefits pdf. The Value Examiner accepts some reprinted articles, if accompanied by appropriate reprint permission.REPRINTSMaterial in The Value Examiner may not be reproduced without express written permission. Article reprints are available; call NACVA at (800) 677-2009 and/or visit the website: Production: Mills Publishing, Inc.; President: Dan Miller; Art Director/Production Manager: Jackie Medina; Magazine Designer: Jackie Medina; Graphic Designers: Ken Magleby, Katie Steckler, Patrick Witmer; Advertising Representatives: Paula Bell, Karen Malan, Dan Miller, Paul Nicholas, Chad Saunders Administrative Assistant: Caleb Deane.Mills Publishing, Inc., 772 East 3300 South, Suite 200, Salt Lake City, Utah 84106, (801) 467-9419. Inquiries concerning advertising should be directed to Mills Publishing, Inc. Copyright 2019. For more information please visit millspub.com.33383942HEALTHCARE INSIGHTSPRIVATE EQUITY INVESTMENT IN THE HEALTHCARE INDUSTRY: PAST, PRESENT, AND FUTURE (Part II Of III) By Todd A. Zigrang, MBA, MHA, FACHE, CVA, ASAThis second installment of this three-part series will describe the history of the private equity industry, the current state of private equity as of fourth quarter 2018, and potential future trends in private equity. P R A C T I C E MANAGEM E NTTIPS FOR PRACTITIONERS:SIX LEADERSHIP HABITS TO DEVELOP IN 2019By Mark GreenBad habits can be hard to break, and for business leaders who have them, they can be deal-breakers.In a survey by Leadership IQ, an online training firm, the primary reasons CEOs were fired—mismanaging change, ignoring customers, tolerating low performers, and not enough action—were often related to unproductive habits. PRACTICING SOLO: TRACY COENENBy Rod P. Burkert, CPA, ABV, CVA, MBAThe author interviews sole practitioner Tracy Coenen, CFP, CFF, from Milwaukee, Wisconsin, and Chicago, IL.PRACTICING SOLO, TOO: ROD BURKERTEditor's Note: Rod started this “Practicing Solo” column by interviewing himself back in the November/December 2011 issue. (Hard to believe, right?!) Including this current issue, Rod has since interviewed forty-two solo practitioners. And as this publication kicks off Rod’s eighth year of preparing these interviews, we thought it would be fun if Rod re-interviewed himself and updated his positions and perspectives. 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Select courses are available 24/7 in a variety of fields of study covering ethics, accounting, auditing, and taxes.To sign up for the Ultimate Training and Membership Subscription, and address any questions, visit or contact Member/Client Services at (800) 677-2009.No other association in the business valuation or financial litigation profession provides the wealth and depth of resources like NACVA.Choose the Ultimate Triple Play Subscription to receive everything included in all three other subscriptions, plus Damages Advocate calculation software. This subscription gives you access to everything we offer. Available for $615 per month for the first user. of what is included in each subscription level.Ultimate KeyValueData® Titanium Subscription— $250 per month for first user (access to 21 separate databases, reports, libraries, and presentations)Ultimate Software Subscription— $90 per month for first user (licenses to five valuation and report writing software packages, plus technical support)Add to your Ultimate Training and Membership Subscription:UltMembFlyer June18.indd 17/16/18 4:25 PMA PROFESSIONAL DEVELOPMENT JOURNAL for the CONSULTING DISCIPLINES6 JANUARY | FEBRUARY 2019 t h e v a l u e e x a m i n e rVALUATION//////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////Cryptocurrency: The Future of Currency or Twenty-First Century Mythical Beast?By Neil Beaton, CPA, ABV, CFA, ASATraditional valuation methodologies rely upon an evaluation of the underlying financial and operat-ing fundamentals of a company or specific assets to assess the likelihood of expected cash flows, and hence, value. Investors can rely upon historical or projected earnings to determine the value of a company or an asset; or they can consider a balance sheet approach in certain situations when the company’s or asset’s cash flows are insuf-ficient to provide a reasonable rate of return on the invested capital. Financial securities are valued by risk adjusting con-tractual payoffs that may occur in the future. However, the fundamental aspects of cryptocurrency and related block-chain instruments are assessed and valued differently.BRIEF BACKGROUND OF CRYPTOCURRENCYOver the past ten years, cryptocurrency has become a global phenomenon. However, the average investor is probably not aware of the nuances associated with cryptocurrency investment. Conversely, it is almost impossible to find a major bank, large accounting firm, a major software company, or a sovereign government that has not researched or implemented cryptocurrencies or blockchain technology. In simplest terms, cryptocurrency is a digital or virtual currency that functions as a medium of exchange. It uses cryptography to secure and verify transactions as well as to control the creation of new units, or tokens, of a particular cryptocurrency or token. The history of cryptocurrency is a little more than a decade old. While digital currency systems existed in the past, they were strictly centralized. Today’s cryptocurrency in its present form does not. An individual (or group) named Satoshi Nakamoto1 is credited 1 “Satoshi Nakamoto” is the name used by the unknown individual or group who developed Bitcoin, created and deployed Bitcoin’s original reference implementation, and devised the first blockchain database. Nakamoto published “Bitcoin: A Peer-to-Peer Electronic Cash System in 2008.with creating Bitcoin. He (or they) intended to create an electronic peer-to-peer monetary system. Realizing another attempt at building an online centralized cash system would only result in another failed attempt, Nakamoto decided to create a digital cash system that had no centralized authority. He created Bitcoin in 2008. At the outset, Bitcoin had a value of a little over one cent. By late 2009 it had reached twenty-seven dollars for a single Bitcoin. Bitcoin’s value topped out at $20,089 per token on December 17, 2017. That record price represented a 24,600 percent return in just fifty-two weeks. But the value of Bitcoin retreated from those all-time highs just as quickly as it had increased. Bitcoin is now trading at roughly $3,500 per token, which is approximately eighty-three percent below the December 17, 2017 price.In creating Bitcoin, Nakamoto had to consider how to stop double spending, i.e., the act of a currency owner spending the same money twice. A central authority had always controlled the expenditure and the amount of cryptocurrency present in the digital world. However, Nakamoto's a system of cryptocurrencies required a complete consensus from all parties; if any disagreement occurred between parties, the system would reject the transaction. Today, there are a number of traded cryptocurrencies in addition to Bitcoin. They all owe their existence to the elusive Satoshi Nakamoto. The top ten cryptocurrencies2 are:1. Bitcoin (BTC)—the first cryptocurrency. It is a digitalcurrency based on blockchain technology, and iteliminates the need for centralized intermediariessuch as banks and credit card companies. It aims tocreate an alternative for currencies such as USD, GBP,JPY, etc.2 Ray King, bitdegree.org, January 4, 2019.A PROFESSIONAL DEVELOPMENT JOURNAL for the CONSULTING DISCIPLINESt h e v a l u e e x a m i n e rJANUARY | FEBRUARY 2019 72. Ethereum (Ether)—the second most valuablecryptocurrency, was created in 2015 by Vitalik Buterin. It is a blockchain-based platform for developingdecentralized apps and smart contracts. This isconsidered a major leap in the world of cryptocurrency.3. Ripple (XRP)—Ripple is unique among cryptocurrency; it has one goal—solving problems related to just oneindustry—International Payment Transfers. Foundedin 2012, XRP’s goal is to make international transactions both fast and cheap. Of the 100 billion XRP that willever exist, Ripple Labs (the company behind Ripple)owns fifty billion. This situation sets XRP apart frommost other cryptocurrencies where there is no centralentity holding the majority of the coins.4. Bitcoin Cash (BCH)—As the name suggests, BitcoinCash was forked3 from Bitcoin itself in 2016. Whenthe Bitcoin developer community could not agree tothe changes required in Bitcoin’s code, it was forkedinto BCH. The purpose of creating BCH was to solvesome of the existing problems of Bitcoin, especiallyregarding scalability and transaction fees.5. EOS—this cryptocurrency made the top tencryptocurrencies even before the launch of itsplatform. The EOS token was launched through aninitial coin offering (ICO) in June 2017 and is a platform for developers to build decentralized applicationsand smart contracts, but with a vast improvement intechnology.6. Cardano (ADA)—Cardano was created by CharlesHoskinson, Ethereum’s co-founder, in September2017. Like Ethereum, Cardano is a platform fordecentralized apps and smart contracts. Like EOS, thedifference between Cardano and Ethereum lies in themany technological improvements it has made overEthereum’s technology. Cardano is being consideredas the third, and potentially most advanced, generation of blockchain technology (just as EOS and NEO are),making it one of the top ten cryptocurrencies of 2019.7. Litecoin (LTC)—Litecoin was created in 2011 byCharlie Lee, an ex-Google employee. It was built onthe blockchain of Bitcoin itself, with the purpose of3 Note: A fork occurs when a cryptocurrency is split into two. Parent cryptocurrencies retain their features while the offspring cryptocurrency undergoes technological improvements.improving it. Like Bitcoin, Litecoin is a digital currency and does not provide a platform for smart contracts. Litecoin transactions take around 2.5 minutes while it takes ten minutes to complete a Bitcoin transaction. For this reason, it is called “Lite” coin.8. Stellar (XLM)—Stellar was founded in 2014 by JedMcCaleb who is also the founder of Ripple. Ripple washard forked into Stellar, and the Stellar DevelopmentFoundation was born. Like Ripple, Stellar alsofocuses on making cross-border payments moreefficient. Stellar stands out from the other top tencryptocurrencies because the Stellar DevelopmentFoundation is a non-profit organization.9. IOTA—Founded in 2015, IOTA is a different coinamong these top ten cryptocurrencies. It is the onlyone to use a new protocol invention called “Tangle”rather than blockchain technology. It focuses on theInternet-of-Things (IoT) Technology, which enablescommunication between various objects with sensors,via the internet. IOTA focuses on making thistechnology more secure, seamless, and scalable. IOTAis betting on the success of another industry—IoT,making its future even more unpredictable than theother top ten cryptocurrencies.10. NEO—a Chinese cryptocurrency, it was created in2014 by Da Hongfei and initially named AntShares. Itwas rebranded in 2017 as NEO. It is often referred toas the “Chinese Ethereum” because of the similaritiesin its offering to that of Ethereum. It also offers ablockchain-based platform for the development ofsmart contracts and launching ICOs. It appears toenjoy the support of the Chinese government, whichgives it a clear advantage in the massive Chinese andAsian market.A CLOSER LOOK AT BITCOINBitcoin, the largest cryptocurrency by value, was released as an open source protocol in 2009 and has been regarded by some as a watershed asset class, and as an outright fraud by others. Bitcoin is a decentralized, electronic, peer-to-peer payment system that provides a medium to purchase goods, act as theoretical storage of value, or operate as a medium of exchange for other cryptocurrencies and tokens. Bitcoins are “mined”(see sidebar for details) and new tokens are generated electronically. Bitcoins and other cryptocurrencies 8 JANUARY | FEBRUARY 2019 t h e v a l u e e x a m i n e rA PROFESSIONAL DEVELOPMENT JOURNAL for the CONSULTING DISCIPLINESand crypto tokens do not provide the holder with any contractual or expected cash flow. No balance sheet supports their value, only the future potential that they will increase in value due to increased demand. As such, traditional fundamental valuation techniques generally do not apply to cryptocurrency and other blockchain-related instruments. Cryptocurrencies are difficult to compare to other asset classes. As shown in Table 1, Bitcoin has no meaningful correlation to a variety of different asset classes such as commodities, equity exchanges, and currency. Essentially, Bitcoin behaves very differently than most financial assets.TABLE 1: CORRELATION MATRIX - RETURNS OF VARIOUS ASSETS DECEMBER 2017–2018Unlike fiat currency, there is no central bank, the real economy, or government that backs them. Similarly, crypto tokens issued by companies in an ICO do not represent an economic claim like equity or debt investment. Commodities provide value due to their material nature, which again is dissimilar to blockchain-related instruments. The real value of cryptocurrency and tokens is in the blockchain itself—future demand for the technology will generate scarcity, which will increase the value of the protocol if demand outstrips supply.The supply and demand dynamics for cryptocurrencies and crypto tokens are the best way to think about their potential value, which helps explain why there is such volatility for the asset class. In the absence of a straight-forward valuation methodology or an ascertainable intrinsic value, Bitcoin has seen significant fluctuations since being launched in 2009. Cryptocurrency’s real value (the real value of any cryptocurrency) will be realized once it gains widespread use.t h e v a l u e e x a m i n e r JANUARY | FEBRUARY 2019 9A PROFESSIONAL DEVELOPMENT JOURNAL for the CONSULTING DISCIPLINESAs shown in Table 2, Bitcoin’s price began to skyrocket in 2017 and investors, both knowledgeable and novice, flocked to what looked like an opportunity to get on the rocket before it went into orbit. This was precipitated by Bitcoin futures launching on the Chicago Mercantile Exchange in December 2017. Bitcoin futures were believed by many to signal increased acceptance by financial institutions, which would propel its demand—and price. Highly regarded financial minds were saying at the time that the price of Bitcoin was still very far away from its peak, while others were skeptical of its use and value at all. Bitcoin’s price quickly retreated and was met with very high volatility throughout 2018, ultimately ending the year nearly eighty percent lower than the peak reached in December 2017.Despite Bitcoin’s lackluster year in 2018, ICO’s raised $21.6 billion in 2018 compared to $6.6 billion in 2017 and $1.0 billion in 2016.TABLE 2: BITCOIN PRICE HISTORYNext >