Research Summary
This report provides an in-depth analysis of the valuation of FTX’s crypto assets, including the influence of liquidity on valuation and the valuation of pre-ICO tokens. It also discusses the concept of Fair Value Measurement and its impact on crypto asset valuation. The report further explores the implications of FTX’s substantial crypto holdings for its creditors.
Key Takeaways
FTX’s Crypto Asset Holdings
- FTX’s Crypto Assets: As of August 31, FTX held $3.4 billion in crypto assets, including $1.16 billion in SOL, $560 million in BTC, and $192 million in ETH, among others. The company also holds illiquid tokens and crypto-related brokerage investments.
- Valuation of Crypto Assets: The valuation of FTX’s crypto assets is crucial for its creditors. However, the value of some of these assets is challenging to determine due to their illiquidity.
- Importance of Fair Value Measurement: Fair Value Measurement is a critical method for evaluating crypto assets. It is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Influence of Liquidity on Crypto Asset Valuation
- Liquidity and Crypto Asset Valuation: Crypto assets have been divided into ‘Type A’ and ‘Type B’ based on a specific liquidity threshold. The existence of an active market is a key variable in determining the liquidity of these assets.
- Consideration of Liquidity: Liquidity is a crucial factor in crypto asset valuation. A large blockage rate, the ratio of token holding to market circulation supply, indicates that the market cannot absorb the holding at the current value.
Valuation of Pre-ICO Tokens
- Pre-ICO Token Valuation: The report discusses the valuation of pre-ICO tokens, introducing the concept of cost-basis. The cost basis refers to the initial purchase price when obtaining crypto assets and forms the foundation for computing profits and losses.
- Income Approach: In scenarios where there is no available market data and related quoted prices for pre-ICO tokens, the income approach, based on future cash/token flows to the token holder, could be a possible method for valuation.
Actionable Insights
- Understanding Fair Value Measurement: Investors and crypto firms should familiarize themselves with the concept of Fair Value Measurement and its implications for crypto asset valuation.
- Consideration of Liquidity: Liquidity should be a key consideration when valuing crypto assets. Investors should be aware of the blockage rate and its impact on the market’s ability to absorb a particular holding.
- Pre-ICO Token Valuation: Investors should understand the methods used for pre-ICO token valuation, including the income approach, and consider these methods when making investment decisions.
