Dynamic Principal Market Determination: Fair Value Measurement of Cryptocurrency

Abstract

Cryptocurrencies and blockchain technology are disruptive innovations at the vanguard of a new wave of the digital revolution. The far-reaching appeal, global reach, unprecedented mobility of capital, and multitude of trading venues have created a marketplace like no other. The economic fundamentals underlying this market are yet to be fully comprehended, as evidenced by the often-contradicting guidelines recommended by accounting firms, government agencies, and standard setters. Many of the definitions and models used for classical markets cannot be applied directly to cryptocurrency. Basic concepts must be reinterpreted, and models must be modified to fit the mechanics of these markets. In this article, we focus on one such concept: that of fair value. We argue that in light of the fragmentation of cryptocurrency markets and the global dispersion of trading venues, a principal market may be difficult to identify. The primary objective of this article is to present a methodology to dynamically designate principal markets and derive fair value prices for financial reporting using this designation.

Exploring the uncharted territories: a structured literature review on cryptocurrency accounting and auditing

“…, 2019). In addition, Beigman et al. (2021) introduced a method to identify the primary market for fair value measurement as per IFRS 13, and Beigman et al.…”

“…Morozova et al, 2020). Within the (D3) category, three studies (Beigman et al, 2021(Beigman et al, , 2023Ram et al, 2016) utilizing a mixed methodology were incorporated and classified as "other empirical. "…”

“…The revaluation model can be used only in the presence of an active market for the cryptocurrency (Chou et al, 2022;Ramassa and Leoni, 2022), however, not all cryptocurrencies have an active market, case in which the cost model will be applied (Fomina et al, 2019). In addition, Beigman et al (2021) introduced a method to identify the primary market for fair value measurement as per IFRS 13, and Beigman et al (2023) presented a method for fair value measurement in inactive markets, aligning with IFRS 13, IAS 21 and ASC 820.…”

Blockchain in accounting practice and research: systematic literature review

“…Thus, cryptos fall under the accounting rules for “Intangible assets with indefinite useful lives” (IAS 38.107), so they cannot be amortized but only impaired. Furthermore, if an active market exists, then intangible assets can be valued at fair value (IAS 38.75) (Procházka, 2018; Morozova et al , 2020; Beigman et al , 2021).…”

Risk analyses of the crypto-market: A literature review

“…A great share of studies examines the correlation between cryptocurrency prices and their underlying fundamental value (Biais et al, 2020;Athey et al, 2016;Zimmerman, 2020;Cong et al, 2021;Liu and Tsyvinski, 2021). While some works have suggested that bitcoin lacks a fundamental value and is purely speculative (Cheah and Fry, 2015;Kallinterakis and Wang, 2019), others argue that cryptocurrencies, as a whole, possess a fundamental value, albeit one that is challenging to ascertain (Dowd, 2014;Beigman et al, 2021).…”