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Cryptoasset Valuation: Fair Value or Fair Game?

FULL ARTICLE written by Chris Kentouris, editor at FinOps Report.

“Lukka, a New York-based middle and back office technology provider for cryptofunds formerly known as Libra Tech, says that it has come up with a proprietary methodology for valuing cryptoassets that is far better than relying on an average price, the most common approach. Instead, Lukka’s new pricing feed Lukka Prime, will rely on identifying the principal market on which cryptocurrency trades — a stance which it says allows the fund manager to meet fair value acounting requirements. “Average pricing does not meet the US’ Generally Accepted Accounting Principles (GAAP) or the International Financial Reporting Standards (IFRS), primarily because one cannot actually trade at that price,” says Jake Benson, chief executive of Lukka. US and global accounting standards have been converging for over a decade to become comparable in many instances.

To determine the principal market on which a cryptocurrency trades, Lukka blends qualitative and quantitative criteria in a complex mathematical formula. The firm then uses the last price from the principal market. The quantitative factors include the exchange’s jurisdiction, level of regulation, whether it has anti-manipulation procedures in place and whether it has robust anti-money laundering and know your customer procedures. The quantitative criteria include at volume, liquidity, and average bid-ask spread. (A full explanation of Lukka’s five step methodology can be found in its white paper entitled “Cryptocurrency Pricing for Financial and Tax Reporting”).”

 

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