Fair Value Measurements

9 Months Ended

Sep. 30, 2022

4. Fair Value Measurements

The fair value of financial instruments is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., “the exit price”) in an orderly transaction between market participants at the measurement date. ASC 820,

Fair Value Measurement

, establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from independent sources. Unobservable inputs reflect assumptions that market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the transparency of inputs as follows:

Level 1 – Quoted prices for identical instruments in active markets.

Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3 – Instruments whose significant drivers are unobservable.

The availability of observable inputs can vary from product to product and is affected by a wide variety of factors, including, for example, the type of product, whether the product is new and not yet established in the marketplace, and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by management in determining fair value is greatest for instruments categorized in Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety.

The tables below summarize the categorization of the Company’s assets and liabilities measured at fair value. During the three and nine months ended September 30, 2022 and 2021 there were no transfers between Levels 2 and 3.


	September 30, 2022
	Total		Level 1		Level 2		Level 3
Assets:
Recurring fair value measurements:
Cash equivalents	$	284	$	284	$	—	$	—
Securities owned, at fair value
ETFs		12,621		12,621		—		—
U.S. treasuries		8,437		8,437		—		—
Pass-through GSEs		102,248		23,694		78,554		—
Corporate bonds		1,804		—		1,804		—
Investments in Convertible Notes
Securrency, Inc.—convertible note (Note 7)		5,844		—		—		5,844
Fnality International Limited—convertible note (Note 7)		6,195		—		—		6,195

Total	$	137,433	$	45,036	$	80,358	$	12,039


Non-recurring fair value measurements:
Onramp Invest, Inc.—preferred stock (Note 7) (1)	$	312	$	—	$	—	$	312

Liabilities:
Recurring fair value measurements:
Deferred consideration (Note 9)	$	164,757	$	—	$	—	$	164,757

(1)

Fair value determined on May 10, 2022 (Note 7).


	December 31, 2021
	Total		Level 1		Level 2		Level 3
Assets:

Recurring fair value measurements:
Cash equivalents	$	11,488	$	11,488	$	—	$	—
Securities owned, at fair value
ETFs		18,812		18,812		—		—
Pass-through GSEs		106,245		24,720		81,525		—
Corporate bonds		2,109		—		2,109		—

Total	$	138,654	$	55,020	$	83,634	$	—

Non-recurring fair value measurements:
Securrency, Inc.—Series A convertible preferred stock (1)	$	8,488	$	—	$	—	$	8,488

Liabilities:
Recurring fair value measurements:
Deferred consideration (Note 9)	$	228,062	$	—	$	—	$	228,062

(1)

Fair value of $8,488 and $8,349 determined on June 9, 2021 and March 8, 2021, respectively (Note 7).

Recurring Fair Value Measurements - Methodology

Cash Equivalents (Note

)

– These financial assets represent cash invested in highly liquid investments with original maturities of less than 90 days. These investments are valued at par, which approximates fair value, and are classified as Level 1 in the fair value hierarchy.

Securities Owned (Note

)

– Securities owned are investments in ETFs, pass-through GSEs, U.S. treasuries and corporate bonds. ETFs and U.S. treasuries are generally traded in active, quoted and highly liquid markets and are therefore classified as Level 1 in the fair value hierarchy. Pricing of pass-through GSEs and corporate bonds include consideration given to collateral characteristics and market assumptions related to yields, credit risk and timing of prepayments and are therefore generally classified as Level 2. Pass-through GSE positions invested in through a fund structure with a quoted market price on an exchange are generally classified as Level 1.

Fair Value Measurements classified as Level 3

– The following table presents a reconciliation of beginning and ending balances of recurring fair value measurements classified as Level 3:


	Three Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021
Investments in Convertible Notes (Note 7)
Beginning balance	$	11,712		$	—		$	—		$	—
Purchases		—			—			11,863			—
Net unrealized gains (1)		327			—			176			—

Ending balance	$	12,039		$	—		$	12,039		$	—

Deferred Consideration (Note 9)
Beginning balance	$	242,767		$	226,706		$	228,062		$	230,137
Net realized losses (2)		4,105			4,250			13,001			12,834
Net unrealized gains (3)		(77,895	)		(1,737	)		(63,188	)		(5,066	)
Settlements		(4,220	)		(4,266	)		(13,118	)		(12,952	)

Ending balance	$	164,757		$	224,953		$	164,757		$	224,953

(1)	Recorded in other losses, net in the Consolidated Statements of Operations.

(2)	Recorded as contractual gold payments expense in the Consolidated Statements of Operations.

(3)	Recorded as gain on revaluation of deferred consideration—gold payments in the Consolidated Statements of Operations