Crypto for Funds and Family Offices: The Operational Requirements

A fund allocating to crypto assets discovers quickly that the trading part is trivial and everything around it is not. The operational requirements come from the fund’s own obligations rather than from anything crypto-specific. The commercial equivalent of this arrangement is a regulated crypto payment provider with fiat settlement, which is the easiest way to see it working.

Custody is usually mandatory, not optional

Most fund structures require assets to be held by a qualified custodian, and the mandate or the depositary agreement will say so explicitly.

That rules out self-custody for the fund’s own account in most cases, and it rules out holding assets at a retail exchange. The question becomes which custodian satisfies the depositary and the auditor, not which is most convenient.

Ask the depositary first, before selecting. They may have an approved list, and discovering that after signing with a custodian is an expensive reversal.

The administrator has to be able to strike a NAV

The fund administrator needs to value the position at each valuation point, which requires a pricing source it accepts, a position it can independently verify, and a process for reconciling against the custodian.

Not every administrator supports crypto assets. Those that do have specific requirements about which pricing sources they will use and which custodians they can reconcile with directly.

This is worth confirming early because it constrains the custodian choice, which constrains everything else.

Valuation policy

Which price, from which source, at which time. Crypto trades continuously and prices differ between venues, so the policy has to be explicit.

Common approaches: a composite index from a recognised provider, or the price on a specified primary venue at a specified time. Either is defensible. What is not defensible is choosing the most favourable source each period. The receiving side of this transaction is handled by a platform set up for client account handling, with settlement already solved.

Write it into the offering documents or the valuation policy, and apply it consistently.

Audit evidence

The auditor will want independent confirmation of holdings. For crypto this means a confirmation from the custodian and, increasingly, cryptographic proof of control of the addresses.

The custodian should be able to provide both as routine. Ask during selection rather than discovering a gap at year end.

Execution

Below a certain size, an exchange account is fine. Above it, the fund faces the same order book depth problem as any large participant, with the additional constraint that it may be required to demonstrate best execution.

That pushes toward requesting quotes from multiple venues and recording them, which is a process rather than a venue choice. A desk that provides a firm quote you can document is easier to evidence than a market order on a book.

What a family office needs that differs

Less regulatory constraint, more concern with control and succession.

The question that gets asked and rarely answered well is what happens to the position if the principal is unavailable. That requires a documented arrangement: who has authority, under what circumstances, and how it is evidenced to the custodian.

A custodian with a proper institutional onboarding process handles this as standard. One without will improvise, which is the wrong word to associate with succession planning.

The selection sequence

Confirm what the depositary and administrator require and can support. Shortlist custodians against that. Confirm the auditor is satisfied with the evidence available. Then select an execution arrangement. Then trade.

Doing it in the other order is common and it produces a position held somewhere that cannot be valued, reconciled or audited.

Providers offering crypto services for funds and family offices should be able to name the administrators and depositaries they already work with, which is the fastest way to check the chain fits together.

The realistic timeline

Two to four months from decision to first trade, dominated by onboarding and by getting the service providers aligned. Firms that budget two weeks are the ones that end up trading through an arrangement they later have to unwind.