What an Investment Fund Needs Before It Can Hold Crypto

A fund buying crypto finds the trading part trivial and everything around it difficult. The requirements come from the fund’s own rules rather than from anything crypto-specific. This is easier to understand against something concrete, and a licensed crypto payment processor is concrete.

Custody is usually required

Most fund structures require assets to be held by a qualified custodian, and the fund’s documents will say so.

That rules out keeping the keys yourself, and it rules out leaving the position at a retail exchange. The question becomes which custodian your depositary and auditor will accept.

Ask the depositary first. They may have an approved list, and finding that out after you have signed with someone is an expensive reversal.

The administrator has to be able to value it

Your administrator needs to value the position at each valuation date, which means a price source it accepts, a holding it can verify independently, and a way to reconcile with the custodian.

Not every administrator handles crypto. Those that do have specific requirements about price sources and about which custodians they can work with directly.

Confirm this early, because it narrows the custodian choice, which narrows everything else.

A valuation policy in writing

Which price, from which source, at which time. Crypto trades continuously and prices differ between venues, so this has to be explicit. Companies hit this sooner and harder, and a provider serving law firms and corporate services is the usual answer.

Common answers are a recognised index or the price on a named venue at a named time. Either works. What does not work is choosing whichever is most favourable each period.

What the auditor will want

Independent confirmation of the holdings. For crypto that means a statement from the custodian and, increasingly, cryptographic evidence that the addresses are controlled.

A proper custodian provides both routinely. Ask during selection rather than discovering a gap at year end.

Buying and selling

Below a certain size an exchange account is fine. Above it you face the same problem as any large buyer, with the extra requirement that you may have to show you sought the best execution.

That pushes towards asking several places for a price and recording the answers, which is a process rather than a venue choice.

For a family office

Less regulatory constraint, more concern about control and what happens next.

The question that rarely gets a good answer is what happens to the position if the principal is unavailable. That needs a documented arrangement: who has authority, when, and how the custodian is satisfied of it.

A custodian with a proper institutional process handles this as standard. One without will improvise, which is not a word you want near succession planning.

The order of operations

Find out what the depositary and administrator require. Shortlist custodians against that. Confirm the auditor is satisfied. Then arrange execution. Then trade. If you want a working example of everything above, the published coverage list is one.

Doing it the other way round produces a position nobody can value, reconcile or audit.

Budget two to four months from decision to first trade. Firms that budget two weeks end up unwinding something later.