MtM, or Mark-to-Market, is an accounting and valuation method that assesses the fair value of an asset or liability based on its current market price. In the crypto investment space, MtM is critical for institutional investors, trading desks, and lending platforms to accurately reflect the real-time value of their digital asset portfolios, derivatives positions, and collateral holdings for reporting, risk management, and margin calculation purposes.
Mechanism
The mechanism involves regularly re-evaluating an asset or liability against observable market prices, typically at the end of a trading day or in real-time for highly liquid assets. For crypto, this requires access to reliable, aggregated price feeds from multiple exchanges or oracle networks to determine a representative fair value, which then updates the book value of positions held by institutional options trading systems or Request for Quote (RFQ) participants.
Methodology
The methodology for implementing MtM requires robust data infrastructure capable of sourcing, cleaning, and normalizing real-time crypto price data across various markets. It mandates strict valuation policies, independent price verification, and integration with risk management systems to calculate profit and loss, monitor margin requirements, and ensure accurate financial statements, providing a transparent and current view of exposure in dynamic crypto markets.
Collateralization is a dynamic lever, allowing firms to strategically alter product pricing by directly influencing counterparty risk and funding costs.
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