A token may show a price every second and still lack a market in which a fund could sell its position.
The displayed quote may come from a venue with little volume. Reported activity may include wash trading or transactions unavailable to the fund. Most circulating supply may be held by a small group. The manager’s tokens may be locked, staked, bridged, or subject to transfer restrictions. A modest sale could move the market materially.
A crypto fund valuation policy must test whether a price is relevant to the asset and quantity the fund holds. Continuous trading does not eliminate fair-value judgment; it can conceal how much judgment the manager is already using.
Fix the valuation time before selecting the price
Digital asset markets trade across time zones and do not share one closing auction. A fund should specify the valuation time and time zone used for net asset value, performance, subscriptions, redemptions, and financial reporting.
The policy should address weekends, holidays, daylight-saving changes, delayed data, network outages, and the timing of administrator calculations. Using “the closing price” without defining a market and timestamp leaves room for inconsistent selection.
The SBAI operational-diligence framework for digital assets identifies the absence of a conventional market close as a digital-asset valuation consideration. A consistent timestamp allows the manager, administrator, auditor, and investor to compare the same observation.
Consistency does not require using a known bad price. The policy should define when the standard source becomes unavailable or unreliable and who can invoke the alternate process.
Establish a hierarchy of pricing sources
A source hierarchy prevents the manager from selecting whichever price produces the preferred result. It can begin with an independent benchmark or pricing service that uses eligible venues and a documented methodology. Secondary sources may include another benchmark, the principal market, multiple observable venue prices, or a broker quote. Fair-value methods apply when those inputs do not provide a reliable measure.
Selection criteria may include:
- trading volume and order-book depth;
- reliability and independence of the venue;
- availability to the fund;
- resistance to manipulation and outliers;
- treatment of stale or anomalous data;
- consistency of the token and contract address;
- fiat or stablecoin quotation currency;
- time-weighting or volume-weighting methodology; and
- continuity and licensing of the data.
An average of weak inputs does not become a strong price. The manager should understand which venues enter a benchmark and whether their liquidity, access, and compliance profile match the fund’s position.
Price and liquidity answer different questions
A last trade at $2.00 indicates that some quantity changed hands at that price. It does not establish that five million tokens could be sold for $10 million.
The valuation process should consider the fund’s unit of account and applicable accounting framework, then assess how market depth, concentration, restrictions, and orderly-transaction assumptions affect the measurement. A liquidation discount should not be improvised merely because a position is large; nor should the fund ignore evidence that the quoted market is inactive or inaccessible.
Useful liquidity evidence includes bid-ask spreads, order-book depth, daily and median volume, venue concentration, trade size, circulating supply, holder concentration, historical slippage, and observed secondary transactions. The manager should distinguish reported volume from credible executable liquidity.
Thinly traded or inactive markets require caution. The SBAI Alternative Investment Standards updated in 2026 state that quoted prices in such markets may not reflect achievable exit values and emphasize consistent, transparent, documented selection of inputs.
Restrictions and token economics can change the instrument
The fund may not own the same economic asset represented by an unrestricted exchange quote. Tokens can be subject to contractual lockups, protocol vesting, transfer limitations, staking unbonding periods, slashing exposure, bridge risk, or rights that differ by wallet or holder.
The valuation file should identify the exact token contract, network, quantity, restrictions, release schedule, and attached rights. It should also account for accrued or claimable rewards consistently and avoid double counting a staked asset and its receipt token.
Token supply events matter. Unlocks, emissions, burns, migrations, redenominations, forks, airdrops, and governance changes can alter value or comparability. A price before a material unlock may not remain relevant after new supply becomes transferable.
Related-party and financing transactions require scrutiny. A project team or affiliated investor may purchase a small quantity at a stated valuation that does not represent an orderly market for the fund’s holdings. A token sale bundled with warrants, services, governance rights, or future allocations should not be treated as a clean price without separating the economics.
Define price-challenge triggers
The administrator may calculate net asset value, but the manager usually remains responsible for supplying or approving information it controls. A price-challenge process should identify conditions requiring review before the standard source is accepted.
Triggers can include:
- price movement beyond a defined threshold;
- a material difference among sources;
- low or concentrated volume;
- exchange suspension or withdrawal restriction;
- protocol exploit, depeg, fork, or chain halt;
- stale pricing or missing data;
- a trade involving an affiliate;
- new lockup or legal restriction;
- a fund transaction near the valuation time; or
- a result inconsistent with observable market events.
The reviewer should document the issue, sources considered, method selected, conflicts, approvals, and effect on net asset value. Overrides should be visible to the valuation committee and auditor rather than buried in an email to the administrator.
Separate valuation from performance pressure
Token marks can affect management fees, incentive allocation, redemption amounts, fundraising, and reported track record. Those incentives create a conflict even when the manager acts in good faith.
Governance can separate price collection from approval, require committee review of material overrides, identify personal holdings, and escalate assets associated with the manager or its principals. An independent administrator or valuation specialist can improve the process, but the manager should understand the methodology and provide complete information.
Backtesting is useful. Comparing prior marks with subsequent sales, redemptions, unlocks, and observable markets can reveal sources or assumptions that consistently overstate realizable value. The purpose is to improve the process, not to force every estimate to equal a later transaction completed under different conditions.
Explain what happens during market disruption
The policy should address more than missing data. A price may remain available during an exchange hack, stablecoin depeg, chain halt, or withdrawal suspension while no orderly transaction is reasonably available to the fund.
The manager should define who can suspend a published net asset value, delay a subscription or redemption calculation where the documents permit, use an alternate source, or apply fair value. Those powers must align with the governing documents and investor disclosures.
A hypothetical fund illustrates the issue. It holds 12 million tokens quoted at $0.40 on one offshore venue, implying $4.8 million. Only $60,000 trades daily, the top ten wallets control most circulating supply, and the fund’s tokens unlock over nine months. A $500 trade at $0.40 is evidence, but using it without analyzing restrictions, activity, and market access may overstate what the fund owns.
The solution is not an automatic percentage discount. The manager needs a documented method grounded in the applicable valuation standard, token rights, reliable inputs, and current facts.
Valuation should not quietly decide investor liquidity
A fair-value conclusion establishes a value under the applicable framework; it does not prove that the position can fund a redemption on the same timetable. Managers should keep valuation governance connected to, but distinct from, liquidity management.
If a hard-to-value token becomes a material part of net asset value, the fund should review the consequences for redemptions, fee calculations, investor allocations, borrowing, and portfolio limits. The governing documents may permit a side pocket, in-kind distribution, reserve, gate, or suspension under specified conditions. Those tools cannot be added informally by the valuation committee after a market closes.
The manager should also examine transaction sequencing. Allowing one investor to redeem at a price supported by a thin market can leave remaining investors with the less liquid position and the cost of realizing it. Conversely, applying an unsupported discount only to a redeeming investor can conflict with the fund’s allocation and valuation terms. The documents, policy, and administrator process should resolve the method before the conflict becomes immediate.
Investors need a reproducible answer
Institutional diligence may ask for the valuation policy, price-source hierarchy, administrator agreement, committee materials, override log, liquidity analysis, and examples of hard-to-value positions. The investor may also compare valuations used in financial statements, capital accounts, redemption calculations, and marketing materials.
A credible process allows another qualified reviewer to follow the evidence and understand the judgment. It does not promise that the eventual sale price will be identical.
Veritas Global advises digital asset funds on valuation provisions, pricing policies, committee governance, administrator responsibilities, and consistency across offering and performance materials. If live quotes are masking illiquid positions in your portfolio, contact us to review whether the valuation framework fits the assets.
Disclaimer: This article is provided for general informational purposes only and does not constitute legal, accounting, valuation, tax, investment, or other professional advice. It does not create an attorney-client relationship. Valuation requirements depend on the applicable accounting framework, governing documents, regulatory status, assets, and facts. Readers should consult qualified advisers before acting.
