Fair Value Classification

BlockchainAnalysis.io automatically classifies crypto-assets into fair value hierarchy levels under IFRS 13 — Fair Value Measurement. This classification is essential for audit reporting, financial statements, and regulatory compliance for entities that hold crypto-assets on their balance sheet.

Fair value classification is primarily relevant for entities reporting under IFRS or similar standards (e.g., EU-regulated entities, publicly listed companies, institutional funds). Individual tax filers typically do not need this classification — see Tax Reports for personal tax reporting.

The IFRS 13 Fair Value Hierarchy

IFRS 13 establishes a three-level hierarchy for fair value measurements, based on the observability and reliability of the inputs used to determine fair value.

Level 1 — Quoted Prices in Active Markets

Level 1 inputs are unadjusted quoted prices in active markets for identical assets. This is the most reliable form of fair value measurement.

Criteria for Level 1 classification:

  • The asset trades on one or more active markets (exchanges with sufficient volume and liquidity).
  • Quoted prices are readily available at the measurement date.
  • No adjustments are made to the quoted price.

Crypto-assets typically classified as Level 1:

  • Bitcoin (BTC) — Traded on hundreds of exchanges with deep liquidity.
  • Ethereum (ETH) — Traded on hundreds of exchanges with deep liquidity.
  • Other major tokens with significant exchange listings and daily volume exceeding $10 million (e.g., SOL, BNB, XRP, ADA, DOGE, AVAX).

Level 2 — Observable Inputs Other Than Level 1

Level 2 inputs are inputs other than quoted prices in active markets that are observable for the asset, either directly or indirectly.

Criteria for Level 2 classification:

  • The asset trades on markets, but with lower liquidity or fewer active exchanges.
  • Fair value can be derived from observable market data (e.g., prices of similar assets, DEX pool prices with meaningful liquidity).
  • Adjustments may be needed (e.g., for liquidity discounts), but the adjustments are based on observable data.

Crypto-assets typically classified as Level 2:

  • Mid-cap tokens listed on multiple exchanges but with lower daily volume ($100K - $10M).
  • Tokens primarily traded on DEXes with observable pool prices and meaningful liquidity.
  • Stablecoins where the fair value is derived from the peg and observable redemption mechanisms.
  • Wrapped tokens (e.g., WETH, WBTC) where the fair value is derived from the underlying asset.

Level 3 — Unobservable Inputs

Level 3 inputs are unobservable inputs for the asset. Fair value is determined using the entity's own assumptions and models.

Criteria for Level 3 classification:

  • The asset does not trade on any active market.
  • No observable market data is available.
  • Valuation requires significant management judgment and modeling.

Crypto-assets typically classified as Level 3:

  • Illiquid tokens with minimal or no exchange listings and negligible daily volume.
  • Governance tokens for small protocols with no meaningful secondary market.
  • NFTs (unique, non-fungible assets with no standardized market pricing).
  • Locked or vesting tokens that cannot be freely traded.
  • LP tokens, vault shares, and other DeFi position tokens with no direct market price.

Level 3 classifications require the most disclosure in financial statements. Entities must describe the valuation techniques used, the significant unobservable inputs, and a sensitivity analysis showing how changes in inputs would affect the fair value.

How BlockchainAnalysis.io Auto-Classifies

The platform applies an automated classification algorithm based on observable market data at the measurement date.

Classification Criteria

| Factor | Level 1 | Level 2 | Level 3 | |---|---|---|---| | Exchange listings | 3+ major exchanges | 1-2 exchanges or DEX-only with liquidity | No meaningful listings | | Daily trading volume | > $10M | $100K - $10M | < $100K | | Bid-ask spread | < 0.5% | 0.5% - 5% | > 5% or not measurable | | Price source availability | Multiple independent sources | Limited sources, may need adjustment | No reliable source | | Market activity | Continuous trading | Intermittent trading | No trading or negligible |

Classification Process

  1. Data collection — The platform retrieves pricing data from aggregated sources (CoinGecko, CoinMarketCap), exchange APIs, and on-chain DEX data at the measurement date.
  2. Liquidity assessment — Daily trading volume, number of active markets, and bid-ask spreads are evaluated.
  3. Level assignment — Based on the criteria above, each asset is assigned a Level 1, 2, or 3 classification.
  4. Override capability — Auditors and compliance officers can manually override the auto-classification with documented justification.

Auto-classification is performed at each measurement date (typically quarter-end or year-end). An asset's classification can change over time as its market liquidity evolves. The platform tracks historical classifications for audit trail purposes.

Fair Value Measurement Sources

BlockchainAnalysis.io uses a prioritized pricing waterfall:

  1. Exchange quoted prices — Volume-weighted average price (VWAP) from major exchanges at the measurement timestamp. Used for Level 1 assets.
  2. Aggregated market data — Prices from CoinGecko and CoinMarketCap, which aggregate across multiple exchanges. Used for Level 1 and Level 2 assets.
  3. DEX pool prices — On-chain prices from Uniswap, SushiSwap, PancakeSwap, Curve, and other supported DEXes. Used for Level 2 assets.
  4. Derived pricing — For wrapped tokens, the price of the underlying asset. For LP tokens, the value of the underlying pool assets. Used for Level 2 and Level 3 assets.
  5. Last known price — The most recent observable price, adjusted for staleness. Used as a fallback for Level 3 assets with some historical data.
  6. Zero or nominal value — Assigned when no pricing data is available and the asset has no demonstrable market. Used for Level 3 assets.

Integration with Audit Reports

Fair value classification feeds directly into the BlockchainAnalysis.io audit reporting modules:

  • Fair Value Schedule — A complete schedule of all crypto-asset holdings with fair values, classified by hierarchy level, at each reporting date.
  • Impairment Testing — Level 3 assets may require impairment testing under IAS 36. The platform identifies indicators of impairment.
  • Disclosure Notes — Auto-generated disclosure note templates include fair value hierarchy tables, valuation technique descriptions, and Level 3 sensitivity analysis.

IFRS vs US GAAP Considerations

| Aspect | IFRS (IAS 38 / IFRS 13) | US GAAP (ASC 350-60) | |---|---|---| | Classification | Intangible asset (most crypto) | Intangible asset (indefinite-lived) with fair value option under ASU 2023-08 | | Fair value hierarchy | IFRS 13 Levels 1-3 | ASC 820 Levels 1-3 (substantially similar) | | Revaluation | Permitted under revaluation model | Fair value through net income (ASU 2023-08) | | Impairment | IAS 36 impairment testing | Previously impairment-only; now fair value option available |

BlockchainAnalysis.io reports are designed for IFRS compliance. For US GAAP reporting under ASU 2023-08, the same fair value hierarchy and pricing data apply, but the accounting treatment differs. Consult your auditor for US GAAP-specific guidance.

Next Steps

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