What is Token Valuation? Methods, Frameworks, and New Accounting Requirements
Author: Redwood Valuation Content Team
Published: June 29, 2026
A quoted token price is not the same thing as a defensible valuation. A company can pull a price from a crypto exchange in seconds, but for financial-reporting purposes that price is only the starting point. The valuation work begins after the price is pulled: which market should be used, could the company access that market at the measurement date, do any restrictions apply to the asset, and how should those judgments be documented?
That is what token valuation means in practice: estimating the fair value of a crypto token by identifying the relevant rights, market, inputs, restrictions, and valuation method, then documenting the basis for the conclusion. For actively traded tokens, the analysis may begin with a quoted price. For restricted, thinly traded, or pre-launch tokens, the analysis can require substantially more judgment.
This matters now because the accounting rules changed. FASB ASU 2023-08,which added ASC 350-60, requires entities holding certain crypto assets to measure them at fair value through net income for fiscal years beginning after December 15, 2024. For companies and funds holding tokens on the balance sheet, the key question is no longer just “what price is on the screen?” but “what fair value conclusion can we support under U.S. GAAP?”
This article focuses on U.S. companies and funds holding digital assets for financial-reporting purposes. Issuer accounting, tax planning, and securities-offering compliance require separate analysis.
A Token Valuation Workflow
Before reaching for a method, work the problem in order. The same sequence applies whether you hold an actively traded coin or a thinly traded utility token.
Identify the rights. What does the token actually entitle the holder to? Access, governance, a claim on cash flows, redemption against a reserve, or nothing beyond transferability.
Determine scope. Does the asset meet the ASC 350-60 scope criteria, or does another standard apply?
Identify the principal market, or the most advantageous market if no principal market exists. Find the market with the greatest volume and activity for the asset that the entity can access at the measurement date.
Assign the fair value hierarchy level. Level 1, Level 2, or Level 3 under ASC 820, based on the observability of the inputs.
Select the method. Match the method to the token's stage and the evidence available.
Document the basis. Record the inputs, assumptions, and judgments so a reviewer can follow the conclusion.
Reassess. Revisit the conclusion when prices move materially, restrictions lapse, or the token's economics change.
The rest of this article walks through the parts of that workflow that cause the most trouble: scope, market identification, hierarchy levels, and method selection.
Does ASC 350-60 Apply? The Six Scope Criteria
Not every digital asset falls under ASC 350-60. The standard applies to a crypto asset only if it meets all six of these criteria. A token must:
Meet the definition of an intangible asset.
Not provide enforceable rights to, or claims on, underlying goods, services, or other assets.
Be created or reside on a distributed ledger or blockchain.
Be secured through cryptography.
Be fungible.
Not be created or issued by the reporting entity or its related parties.
Criteria 3 and 4, the distributed-ledger and cryptography tests, are straightforward for many crypto assets, but they should still be documented in the scope analysis rather than assumed. Criterion 6 turns on the reporting entity or its related parties: tokens created or issued by the reporting entity or its related parties are outside the scope of ASC 350-60. Criterion 5 is why non-fungible tokens are excluded. Non-fungible tokens fail the fungibility criterion, so they fall outside this standard even though they reside on a blockchain.
When a token clears all six criteria, ASU 2023-08 requires it to be measured at fair value, with changes in fair value recognized in net income, effective for fiscal years beginning after December 15, 2024. That replaces the old cost-less-impairment model, under which holdings could be written down but never written back up when prices recovered.
| Aspect | Prior Model | ASC 350-60 (ASU 2023-08) |
|---|---|---|
| Measurement | Cost less impairment | Fair value |
| Changes in value | Only write-downs recognized | All changes through net income |
| Recovery | No write-ups allowed | Fair value adjustments in both directions |
| Presentation | Mixed with other intangibles | Separate balance sheet presentation |
| Effective date | N/A | Fiscal years beginning after Dec 15, 2024 |
Identifying the Principal Market and the Fair Value Hierarchy
Fair value under ASC 820 is an exit price between market participants in the principal market for the asset. The hierarchy that ASC 820 sets up determines how much of your conclusion rests on observable evidence versus judgment.
A Level 1 measurement requires a quoted price in an active market for an identical asset that the entity can access at the measurement date. That access condition matters. A price printed on an aggregator or index is not, by itself, the principal market. An aggregator blends quotes across venues; it does not tell you where your entity could actually transact. Deloitte's implementation guidance is consistent on the point: when multiple active markets exist with different prices, identify the market with the greatest volume and activity that the entity can access, and measure fair value using the price in that market. Where no principal market exists, ASC 820 looks to the most advantageous market the entity can access.
When an active, accessible market exists, quoted market evidence is usually the starting point under ASC 820. When it does not, or when the asset carries restrictions, the measurement moves to Level 2 or Level 3 inputs, which rely on observable inputs other than quoted prices, or on unobservable inputs supported by the entity's own assumptions.
The Blockage Question (the Most Common Mistake)
Here is the technical point auditors raise most often. ASC 820 does not permit a blockage or position-size discount at any level, including Level 1 (ASC 820-10-35-44). A holder may not mark a large Bitcoin position below the quoted Level 1 price on the theory that selling the whole block at once would move the market. The prohibition also holds across the hierarchy: moving a measurement to Level 2 or Level 3 does not reintroduce a size discount, because position size is a characteristic of the holder rather than of the asset, and it is not a permissible fair value adjustment.
What can affect the measurement is not the holder's position size, but the characteristics of the asset being measured and the assumptions market participants would use. ASU 2022-03 is useful here as a warning, not a blanket permission: for equity securities, it clarifies that contractual sale restrictions are not part of the unit of account and are not considered in fair value. For crypto assets, the restriction analysis should be documented carefully. A holder-specific restriction or contractual sale limitation should not reduce fair value. A restriction embedded in the asset's own terms, transferability, protocol mechanics, or legal rights may affect the valuation technique or inputs if market participants would price the asset on that basis.
Asset-level characteristics: restrictions or transfer limitations embedded in the token's terms, protocol mechanics, or legal rights may affect valuation inputs if market participants would consider them.
Holder-level characteristics: position size, internal sale limits, and restrictions that apply only because of who holds the asset are not considered in fair value.
So restrictions embedded in the asset's own terms, thin trading, and illiquidity may legitimately drive a measurement into Level 2 or Level 3. A blockage or position-size discount may not. Keeping that distinction explicit in the workpapers is often the difference between a clean review and an audit adjustment.
Selecting a Valuation Method
Method selection follows from the token's stage, the market evidence available, and whether the holder has any claim on cash flows. No single method works for every token, and the Chartered Financial Analyst (CFA) Institute's guide on cryptoasset valuation is explicit that "no single valuation model or metric should be used in isolation."
| Token Stage / Evidence | Primary Method | Supporting Method |
|---|---|---|
| Active, accessible market | Market approach (Level 1 quoted price) | Comparable analysis to test reasonableness |
| Thin trading / limited liquidity | Market approach with Level 2/3 inputs | Comparable analysis |
| Restricted or vesting tokens | Market, comparable, or scenario-based approach using inputs that reflect market-participant assumptions | Restriction analysis under ASC 820; avoid blockage or holder-specific discounts |
| Pre-launch / no active market | Scenario-based and option pricing | Comparable benchmarking |
| Fee-generating protocol with a holder claim on cash flows | Income approach (discounted cash flow) | Market and network evidence as support |
Market Approach
When an active, accessible market exists, quoted market evidence is usually the starting point under ASC 820. The work is in identifying the principal market and confirming the entity can access it at the measurement date, not in finding a price. For tokens that trade thinly or carry asset-level restrictions, the market approach still applies, but the inputs move into Level 2 or Level 3, and the restriction analysis under ASC 820 becomes central.
Income Approach (Discounted Cash Flow and Fee-Flow Models)
A discounted cash flow (DCF) analysis is appropriate only for tokens that give the holder a legal or economic claim on cash flows, such as a contractual fee stream, staking or validator economics, or a revenue share. Where no such claim exists, DCF is misleading. The frequent error is treating network-level revenue as if it were token-holder cash flow without a clear linking mechanism between the two.
Income-style analysis may be relevant where token holders or validators have identifiable economic inflows. The CFA Institute notes that in proof-of-stake systems, validators receive transaction fees and new token issuance. That fee point is factual and useful as an input, but the legal claim a token holder has differs from a corporate dividend, so the cash flow should be modeled on its actual contractual or protocol basis rather than by analogy to equity. Practical challenges compound the judgment: limited historical data, no consensus discount rate, and elevated risk premiums relative to traditional equity costs of capital. Whatever rate you use, document the rationale.
Network Models (Metcalfe's Law)
Network models value a network by reference to the size of its user base. Timothy Peterson's research, published through the CAIA Association, found that a large share of Bitcoin's historical price variance tracked the growth in network size under a Metcalfe's Law formulation. The model performs better for established network assets than for other token types, and results are inconsistent across the market. Treat network models as supplemental supporting evidence, not a standalone or primary method for every token.
Comparable Analysis and Scenario Models
Comparable analysis benchmarks a token against similar projects on tokenomics, adoption metrics, and market positioning. It is useful where direct market evidence is thin, with the caveat that good comparables are scarce in a young market. Scenario-based and option pricing models suit pre-launch tokens and high-uncertainty situations, where you weight a range of outcomes by probability to derive an expected value. Both are supporting tools that help bound a range rather than produce a single observable price.
The Regulatory Backdrop: Securities, Commodities, and Tax
Fair value measurement does not happen in a vacuum. Three separate regulatory questions can attach to the same token, and each is analyzed on its own terms.
Securities law. Whether a token transaction involves a security is decided by the Howey test, and securities analysis attaches to an offer, sale, or transaction, not to the asset's label. The current Commission-level interpretation is SEC Release Nos. 33-11412 and 34-105020, "Application of the Federal Securities Laws to Certain Types of Crypto Assets and Certain Transactions Involving Crypto Assets," issued March 17, 2026, and effective March 23, 2026. The Commodity Futures Trading Commission (CFTC) joined the interpretation to provide related guidance under the Commodity Exchange Act. The analysis turns on the asset's characteristics, the rights and promises associated with it, and the context of the transaction. Certain token offerings or transactions may be treated as securities transactions if purchasers invest money in a common enterprise with an expectation of profit based primarily on the efforts of others. As a matter of posture, SEC Chair Atkins observed in November 2025 that "most crypto tokens trading today are not themselves securities," but that is evidence of the regulatory climate, not a shortcut around the Howey analysis. SEC v. Ripple stands for the point that a token is not a security per se, and the analysis is transaction-by-transaction; aspects of that decision remain contested on appeal.
Commodities. Bitcoin and Ether have been treated as commodities under the Commodity Exchange Act, particularly in derivatives and enforcement contexts. Commodity status does not equal the scope of oversight. The CFTC has authority over derivatives and over anti-fraud and anti-manipulation conduct, while spot-market oversight is limited and fact-dependent. Commodity treatment also does not remove the need to consider SEC and IRS classifications separately.
Tax. For federal tax purposes, digital assets are treated as property under IRS Notice 2014-21. Tax fair market value, the price between a willing buyer and a willing seller, is a different standard from ASC 820 fair value, which is an exit price between market participants. Do not conflate them. Form 1099-DA gross-proceeds reporting begins for 2025 transactions, while basis reporting generally begins for post-2025 transactions involving covered digital assets, subject to applicable exceptions and transition relief. The IRS granted good-faith penalty relief for 2025 reporting.
Special Token Classes
Some tokens do not fit the default ASC 350-60 path, and treatment depends on the specific rights and the holder's purpose. State the analysis conditionally, not categorically.
Stablecoins. A stablecoin with enforceable redemption rights may be accounted for as a receivable or financial instrument rather than under ASC 350-60. That depends on the redemption terms; not every stablecoin qualifies.
Non-fungible tokens. NFTs are excluded from ASC 350-60 because they fail the fungibility criterion. For many holders, they may fall under existing intangible-asset guidance, but the treatment depends on the entity and the purpose for holding them, so it should not be stated as a uniform rule.
Security tokens. A token that represents a claim on cash flows may support an income approach, but an asset, market, or hybrid approach may fit better depending on the rights conveyed. It does not automatically point to DCF.
Audit-Ready Documentation Checklist
The difference between a defensible valuation and an audit adjustment usually lives in the workpapers. For an in-scope crypto holding, document the following:
Asset description and the rights the token conveys.
The holder/issuer relationship, including any related-party connection.
The ASC 350-60 scope conclusion tested against all six criteria.
Principal-market identification, with the measurement date and time.
The ASC 820 hierarchy level and the sources of the inputs.
The restriction analysis under ASC 820, distinguishing asset-level characteristics from holder-level characteristics.
Tokenomics assumptions used in any model.
Method selection and weighting, with a sensitivity analysis.
The rationale for any marketability adjustment, and why it is not a prohibited blockage discount.
Reassessment triggers.
A holding becomes a valuation project when one or more of these are present: material crypto holdings; illiquid or restricted tokens; Simple Agreements for Future Tokens (SAFTs); no active principal market; stablecoin redemption uncertainty; wrapped or tokenized real-world assets; audit pushback; or significant quarter-end price movement.
Key Takeaways
For entities holding in-scope crypto assets and preparing GAAP financial statements, fair value measurement under ASC 350-60 is now required, and the standards around it continue to develop.
A quoted price is the start, not the conclusion. Identify the principal market, confirm access at the measurement date, and assign the right hierarchy level before relying on a number.
Scope is a six-part test. All six ASC 350-60 criteria must be met, and criterion 6 turns on the reporting entity or its related parties.
Blockage is prohibited; asset-level restrictions are not. ASC 820-10-35-44 bars a position-size discount at every level, while restrictions embedded in the asset's own terms may affect Level 2 or Level 3 inputs if market participants would price the asset on that basis.
Match the method to the rights. Income approaches need a holder claim on cash flows; network models are supplemental, not primary.
Three regulatory questions stay separate. Securities (Howey, per Release Nos. 33-11412 and 34-105020), commodities (CFTC), and tax (IRS property treatment) are analyzed independently.
When to Bring in a Specialist
An actively traded Bitcoin position may need little outside help. Restricted tokens, SAFTs, thinly traded utility tokens, pre-launch allocations, and complex treasury holdings are a different matter: they need a documented methodology that reconciles traditional valuation standards with crypto-specific economics, and they are where audit pushback and investor questions tend to land. For holdings like these, credentialed valuation professionals who work in both traditional finance and digital assets can build the documentation that holds up under audit and stands behind your reporting to investors.
Frequently Asked Questions
Is a token valuation required?
For entities holding in-scope crypto assets and preparing GAAP financial statements, yes. ASU 2023-08, codified in ASC 350-60, mandates fair value measurement through net income for fiscal years beginning after December 15, 2024. If a token meets all six scope criteria, it must be carried at fair value.
Can I use an exchange price as the fair value?
Sometimes, but not automatically. A Level 1 measurement needs a quoted price in an active market for an identical asset that the entity can access at the measurement date. You first have to identify the principal market; an aggregator or index price is not a substitute for that analysis. If multiple active markets show different prices, use the market with the greatest volume and activity that the entity can access.
How do I value a locked or restricted token?
Apply the asset-level versus holder-level distinction under ASC 820. A restriction embedded in the asset's own terms, transferability, or protocol mechanics may affect Level 2 or Level 3 inputs if market participants would price the asset on that basis. A restriction that is a characteristic of the holder, including the size of the position or a contractual sale limitation, is not considered in fair value. A blockage or position-size discount is prohibited at every level under ASC 820-10-35-44.
What if the token has no cash flows?
Then a DCF is the wrong tool. Income approaches apply only where the holder has a legal or economic claim on cash flows. For tokens without that claim, rely on the market approach where a market exists, and on comparable analysis or scenario-based models where it does not.
What documentation will auditors expect?
At a minimum: the scope conclusion against the six ASC 350-60 criteria, the principal-market identification with measurement date, the ASC 820 hierarchy level and input sources, the restriction analysis under ASC 820, the method selection and weighting with a sensitivity analysis, and the rationale for any marketability adjustment. The documentation checklist above lists the full set.