NTU Research Series: Fair Value Measurement of Crypto Assets

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The accounting treatment of crypto assets has long been a complex and evolving challenge for financial professionals, regulators, and investors. With the growing integration of digital assets into mainstream finance, establishing standardized, reliable, and objective valuation methods is more critical than ever. The Financial Accounting Standards Board (FASB) took a significant step in this direction by officially resolving on October 12, 2022, to apply ASC 820 – Fair Value Measurement and Disclosure to crypto assets. This decision mandates that all U.S. public companies adopt fair value accounting for crypto holdings in their financial statements starting December 15, 2024.

This landmark shift underscores the need for robust, real-time, and high-quality valuation models—especially given the unique characteristics of crypto markets compared to traditional financial assets. In response, a research team led by Assistant Professor Hsieh Sheng-Cheng from the Department of Accounting at National Taiwan University (NTU) has developed two innovative methodologies aligned with ASC 820 standards. These approaches address one of the most pressing challenges in crypto accounting: how to accurately estimate fair value for both actively and thinly traded crypto asset pairs.

Fair Value Measurement for Actively Traded Crypto Assets

For frequently traded crypto assets—such as Bitcoin (BTC) or Ethereum (ETH) paired against major fiat currencies or stablecoins—determining fair value may seem straightforward. However, price discrepancies across exchanges due to differences in liquidity, regulatory frameworks, and market access can lead to inconsistent valuations.

To resolve this, the NTU research team designed a comprehensive framework that identifies the principal market for each crypto asset pair. This process evaluates three key factors:

By analyzing these dimensions, the model pinpoints the most liquid and representative market—the principal market—where the latest executed transaction price serves as the best estimate of fair value under ASC 820 guidelines.

This method ensures objectivity and consistency, enabling auditors, accountants, and corporate treasurers to apply a defensible, rules-based approach when reporting crypto holdings.

👉 Discover how real-time crypto valuation impacts financial reporting accuracy today.

Introducing the Principal Path Method (PPM) for Thinly Traded Assets

While major cryptocurrencies benefit from deep liquidity, thousands of emerging tokens trade infrequently or lack direct market pairs altogether. For these thinly traded crypto assets, traditional valuation techniques often fail due to insufficient observable data.

To solve this gap, the NTU team introduced an innovative solution: the Principal Path Method (PPM).

Unlike conventional models that rely solely on direct price observations, PPM leverages indirect valuation paths through intermediate assets. For example, if Token A trades only against USDT on a small exchange, and USDT is widely traded against ETH, which in turn trades against BTC on major platforms, PPM constructs a multi-hop valuation chain:

Token A → USDT → ETH → BTC

Among all possible conversion paths, the model selects the principal path—the route with the highest aggregate liquidity and lowest transaction cost—then applies multiplicative fair value propagation along each leg of the path.

This dynamic, data-driven approach allows for continuous and auditable valuation updates even for obscure or nascent tokens. By anchoring estimates in observable prices of mainstream assets like Bitcoin, Ethereum, and dominant stablecoins such as USDT and USDC, PPM maintains compliance with ASC 820’s emphasis on observable inputs and market-based assumptions.

Assessing Market Liquidity to Guide Valuation Strategy

Knowing when to apply direct pricing versus indirect path-based methods is just as important as the methods themselves. To support decision-making, the research team conducted a parallel study modeling market liquidity indicators for various crypto-fiat and crypto-stablecoin pairs.

Drawing inspiration from methodologies used by the U.S. Securities and Exchange Commission (SEC), the team analyzed trading volumes, bid-ask spreads, price volatility, and frequency of trades across multiple exchanges. These metrics help classify asset pairs into "actively traded" or "thinly traded" categories—an essential first step before selecting the appropriate valuation model.

For instance:

This dual-framework system—combining liquidity assessment with targeted valuation models—offers a scalable, auditable solution for enterprises managing diverse crypto portfolios.

👉 See how advanced liquidity analysis improves crypto asset classification and reporting.

FAQ: Understanding Crypto Fair Value Measurement

Q: What is fair value under ASC 820?
A: Fair value is defined as the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. It emphasizes observable market data and prioritizes inputs based on reliability.

Q: Why can’t we just use average prices from all exchanges?
A: Aggregating prices without considering exchange credibility, liquidity, or regulatory compliance can lead to misleading valuations. The NTU model ensures only prices from the principal market—where transactions are most representative—are used.

Q: How does PPM handle price manipulation risks on low-volume exchanges?
A: PPM filters out unreliable routes by weighting paths based on verified trading volume and exchange trustworthiness. Only paths dominated by reputable intermediaries are considered valid.

Q: Can PPM be automated for enterprise use?
A: Yes. The algorithmic nature of PPM makes it ideal for integration into financial systems and audit workflows, enabling real-time revaluation as market conditions change.

Q: Are stablecoins like USDT and USDC treated differently in these models?
A: While not risk-free, dominant stablecoins are considered highly reliable due to their widespread adoption and frequent trading. They serve as critical liquidity bridges in PPM calculations.

👉 Explore tools that automate fair value estimation using advanced path-based algorithms.

Toward Standardization in Crypto Accounting

As global regulators move toward greater transparency in digital asset reporting, academic innovations like those from NTU play a vital role in shaping practical solutions. The combination of principal market identification and the Principal Path Method offers a scalable, transparent, and standards-compliant approach to one of crypto finance’s toughest problems: accurate, defensible valuation.

These methodologies not only support compliance with FASB’s upcoming requirements but also lay the groundwork for future frameworks in tax reporting, risk management, and investor disclosure.

For firms navigating the complexities of crypto accounting, adopting data-driven, academically validated models isn’t just prudent—it’s essential for long-term credibility in an increasingly scrutinized landscape.

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