Abstract
As demand grows for trusts to hold digital assets, professional trustees must navigate fiduciary, legal, and operational challenges. This article analyses how trustees can meet their duties when administering digital assets such as cryptocurrencies. Emphasis is placed on issues of asset custody, anti-money laundering compliance, risk mitigation, and due diligence. Parallels are drawn with traditional alternative assets, illustrating that digital assets are conceptually familiar if technically distinct. The article concludes that trustees can adopt a phased, policy-led approach to dealing with digital assets, based on their own level of comfort, leveraging expert support to discharge their obligations responsibly.
The demand is present for mainstream investments of private wealth into digital assets. It is only logical that trustees will be asked to hold and manage digital assets by their clients. In their Asset and Wealth Management Survey of 2024,1 PwC reported that 57% of asset and wealth managers identified that "cryptocurrencies" were the product in highest demand in the preceding 12 months. About 62% of institutional investors identified that "cryptocurrencies" were anticipated to be the product that would be in highest demand over the coming two to three years. On 11 October 2022, BNY Mellon announced that its digital asset custody platform was live in the USA,2 quoting a survey that showed "almost all institutional investors" were interested in investing in tokenised products. On 6 March 2025, US President Donald Trump issued an executive order to establish a "Strategic Bitcoin Reserve" for the USA.3 In 2024, Aspen Digital Limited, with contributions from SBI Digital Markets and the Family Office Association of Hong Kong, released a report identifying that 76% of their private wealth survey participants were already investing in digital assets within Asia.4 This is now a global demand.
This article discusses how a professional trustee might comply with their fiduciary obligations while accepting a digital assets settlement, and the regulatory concerns that a trustee needs to consider when dealing with digital assets, Web3/crypto-assets, and related businesses. It shall also refer to concepts such as decentralised finance, recovery phrases, and custody, and contractual relationships between a trustee (as user) and an exchange (as a dealing counterparty), based upon the author's experience of market standard positions.
DIGITAL ASSETS, VIRTUAL ASSETS, CRYPTOASSETS, AND CRYPTOCURRENCIES
Reference is made to digital assets in this paper simply because there is a plethora of digital assets that have value to clients. Digital assets include but are not limited to cryptocurrencies, cryptoassets, and other digitally coded property. Some of these are now so everyday that a trustee might not instinctively think of them. For example: website domain names; encrypted files; evidence of copyright and other unregistered intellectual property; social media profiles; templates for WordPress websites; eBooks; digitised music and video recordings; entire websites; even things that seem abstract today but are already gaining historical significance, such as legacy code kept as an artefact record. Regrettably, the author does not have space in this article to deal with the growing recognition of digital heritage, including projects such as The Internet Archive,5 but future generations of trustees and councilors in foundations might be asked to take ownership of such legacy digital property for reasons of conservation.
Emphasis is placed on Bitcoin, cryptocurrencies, and like assets, due to the complexities around ownership and custody, but digital assets shall be the label of reference.
A TRUSTEE'S DUTIES
Professional trustees have many duties deriving from legislation, regulation, case law, and equitable principles. For the most part, these duties are property-agnostic: it is irrelevant whether the trustee is dealing with equity securities, debt securities, alternative assets, cash, or digital assets because the standing obligations are the same.
When it comes to digital assets, however, some concerns are either unique or bring unique complexities. These are, in summary:
- Anti-money laundering and client onboarding.
- Control and ownership of the assets.
- Handling the proceeds of crime when dealing with the assets.
- Managing the trust property and acting in line with its duties as trustee.
ANTI-MONEY LAUNDERING AND CLIENT ONBOARDING
Getting proof that a person is who they say they are is now a well-established routine for all financial and legal professionals. Logically, checking that the settlor and beneficiaries are who they say they are, and resident where they say they are resident, will not change simply because of the nature of the proposed settled assets.
Where trustees feel discomfort is where they are required to confirm that the proposed trust property—the digital assets—are not the proceeds of crime. One cannot prove conclusively in many cases that any property is ever truly free of connections to the proceeds of crime, but comfort can still be found by minimising the likelihood that any property has come from criminal activity.
The money of criminals?
It is unhelpful that points of view such as that advanced by Christine Lagarde of the International Monetary Fund in 2018 are so emphatic on the potential to use digital assets for money laundering and terrorist financing.6 Ms Lagarde is not alone. Minneapolis Federal Reserve President Neel Kashkari reputedly suggested that cryptoassets were "almost never" used outside of illegal activities.7 While the UK's Financial Conduct Authority now presents—in the author's opinion—a fair view of the risks involved on its website,8 the Bailiwick of Guernsey's 2023 National Risk Assessment report emphasises that digital assets are "seen as attractive to criminals as they generally offer greater opacity than traditional fiat currencies".9
This is unhelpful because it perpetuates the mistaken belief that it is impossible to evidence ownership of digital assets, or at least that the professional trustee cannot take appropriate risk mitigation measures to the same degree as with any other alternative asset.
Of course, there are risks to be managed. The perception that digital assets are a potential gateway for criminal activity contains a grain of truth. However, it is a comfortingly small grain.
The 2025 report on crypto crime by blockchain analysis and compliance software firm Chainalysis10 estimated that 0.14% of all activity in cryptocurrency was attributed to "illicit activity" in 2024. TRM Labs' report11 puts this a little higher, at 0.42%. (Interestingly, both reports referred to stablecoins, not Bitcoin or Ether, being the illicit actor's digital assets of choice.) This is significant because both firms are trying to promote the sales of their anti-money laundering software, which is revisited below, so presumably have an interest in these numbers being higher so as to establish a greater need for their product. That the figures are so low should give trustees everywhere a degree of comfort.
Practical mitigation
Much like accepting gold bars, fine wines, original artwork, or an imported 1963 Ferrari 250 GTO as a trust settlement: evidence is a mitigation of risk and not conclusive proof. The trustee can mitigate the risk to being as low as reasonably practicable, but never technically to zero. Some digital assets do not have a verifiable chain of ownership, such as a photo, an artwork, a digital software programme, and a web page; but specialist evidence such as metadata or transfer history can be used to support a chain of ownership, albeit this is "evidence" and not "proof".
Unlike other alternative assets, most digital assets like cryptoassets are traceable by design. Public addresses and ownership labels are pseudonymous, but they record trails of ownership (as the Basel Institute on Governance noted in 202112). Any user can use a blockchain explorer to inspect any wallet or any non-fungible token and see exactly what other wallets it has been in contact with and get a complete transaction history back to the creation of the asset.
Back in 2018, this was still a difficult and pointless task because so little information had been captured about blockchain users, and there was limited data available about public addresses and monikers linked to criminal activity. However, it has become standard practice for most law enforcement agencies around the world to publish any public addresses (how a cryptocurrency user is known on any blockchain network) that have been used in criminal activity. This has allowed databases of known "bad actor" wallets to be created, and it is now fairly easy to procure software that can inspect any public address you are presented with and check if it has been linked to one of these bad actor wallets. The industry standard is for source of funds inspections to check that the wallet paying into any trust or any other business is unconnected within ten "hops"—that is ten degrees of separation—to any known bad actor wallets. The perfect criminal may find a way through, but such checks are an affordable way to obtain mitigation of risk. There are providers who conduct this kind of investigation to provide a human-readable report that ought to give the professional fiduciary suitable comfort that there are no proceeds of crime involved in a proposed settlement.
This leaves one final problem: confirming that the settlor controlling the wallet is the person that is representing themselves to the proposed trustee. Much like with any alternative asset class, the best available evidence of this is for the proposed settlor to demonstrate their ownership rights. The industry standard seen for cryptocurrencies is that the settlor is asked to either (a) move a small but specific amount of digital assets between addresses in a set time, so that this can be verified on the blockchain by using a blockchain explorer web application, or (b) (where that blockchain has such a feature) asking the proposed settlor to send a nil value transaction with a text message signature or memo attached including specific wording, which again can be read using a blockchain explorer. Efforts are being made to create digital identity verification that could be used to verify ownership of many digital assets, but this should not be expected as commonly available at this time.
Outsourcing risk mitigation
While it is remarkably simple in many cases to verify the source of funds for digital assets, it is accepted that trustees will, in many cases, not know how to do this in practice. Fortunately, there are now several firms of various sizes that can produce reports in simple risk management terms that allow the professional trustee to onboard a client with a significant amount of digital assets. It is entirely possible to obtain a report for a trustee to make an informed decision on accepting a digital assets settlement based upon a suitably rigorous outsourced process. However, there is no "industry standard" for what this kind of report should look like or what risks the report should flag for decision, nor is there any accepted accreditation for the firms that provide this information.
Of course, the buck stops with the professional trustee in terms of liability or regulatory penalties. That said, a trustee who reasonably relies on the work of a suitable and expert third-party firm will have a strong position to adopt in response should any issues later arise.
This issue is identifying what a suitable report should look like, and who is a suitable expert third party. The industry is so nascent, and the standard is still so variable. This means that if the trustee intends to outsource elements of its anti-money laundering compliance with respect to digital assets, it should be prepared to robustly investigate the outputs of any reports provided. This is not too dissimilar from accepting any other alternative asset: an expert advisor is an advisor only, and the responsibility for not accepting the proceeds of crime remains with the trustee.
CONTROL AND OWNERSHIP OF THE ASSETS
At the time of writing, a draft bill proposing a Property (Digital Assets, etc.) Act 2025 is at the report stage in the UK House of Lords and has not yet been passed to the House of Commons. The author is aware of the Law Commission's Digital Assets: Final Report dated 27 June 2023, proposing that the common law of England and Wales has, effectively, recognised that digital assets represent a new kind of property and that legislation should also recognise this—which, of course, the draft bill does.
So the sensible question is not "what is the nature of the property in law?", but "whatever it might be, how does the trustee exercise their control over it?". To work this out, the trustee needs to be aware of how the digital asset exists in practice.
Simple digital files
A digital file is simply data stored at a location. Examples include simple digital photographs, HTML files, and rare audio recordings.
Sure, copies can be made, but each copy is taking up storage space in a single fixed location. If an MP3 is on the hard drive in front of you, destroying the hard drive is sufficient to destroy it; and similarly, taking possession of the hard drive or simply moving the file from that hard drive to another is sufficient to take possession. If you own the storage, you own the file. If you contract with a person to be your agent and they hold the storage, they hold it for you. If you give either to a custodian, they take possession of the whole digital asset.
Cloud storage
Despite the phenomenal branding success that cloud storage has enjoyed, digital assets stored "in the cloud" are actually stored in a location and merely accessed over the internet. Usually, they are stored on a server managed by the cloud storage provider, often with a duplicated (or triplicated, etc.) storage location elsewhere. This usually means that there are two (or more) servers in different countries that are each in communication over the Internet, accessed by the owner (or rather, the storage renter) over the Internet.
If you own a file that is stored on a cloud, you effectively own access to the file, and you may or may not own the file itself, depending on specific arrangements you have with the cloud service. However, the cloud storage provider often cannot access what you are storing on their systems—or, at least, the files themselves are encrypted so the cloud storage provider is unable to do anything other than destroy all files in your storage partitions. Typically, the cloud service agreements make provision for this, allowing the trustee to be reasonably confident that they retain control over digital assets stored on the cloud, provided that they control the passwords and access to the cloud servers.
Many cloud service providers also grant an option for the owner of the digital assets to store the encryption key locally, like a digital file, or to use their own tools to generate the encryption key. This is fairly advanced for the layperson and may not be comfortable for the professional trustee, but it is useful to be aware that this is technically possible.
Taking possession or control of files stored on the cloud is as simple as ensuring that the trustee has control of the cloud environment in which the file is stored. This usually means contractual control over the storage access or ownership of the entity with this contract.
Cryptoassets
Cryptoassets are not stored at a central location. The value of tokens a person owns is simply the figure attributed to their public address on the blockchain that is available to be reassigned to another public address by signing a digital transaction using a private encryption key held off the blockchain.
That is a lot for a trustee to get to grips with, but a simpler way to think about it is that the coins or tokens never leave the networked nodes of the blockchain, where they collectively reside, but the private key used to make the nodes do things lives in the user's wallet.
Wallets are software and the user rarely actually sees their private key(s). Most users will never actually type out their private keys to sign any transactions, in the same way that most users generally do not type in the Internet Protocol address of their computers despite using the internet every day. Instead, the wallet holds the key, a copy of it is generally saved as a file on the user's physical device, and the user has an account and a password for the wallet. The owner of the wallet account, therefore, holds the private key. If the trustee possesses the account (or controls it by contract or ownership of the person who does), they control the private key; and thereby, whatever the nature of cryptoassets is, the trustee is able to take possession of them.
There is one fly in the ointment: recovery phrases. Most wallets and public addresses, at the point of their creation, generate a code that effectively clones the wallet and private key. Think of it like having an emergency master key in case of loss or destruction. This is generally a string of 12 or 24 words in plain text that the user is encouraged to write down and hide away somewhere.
The recovery phrase poses a particular problem for the trustee: it is the greatest point of vulnerability. If this is stolen, the trustee would not know that another person could clone the wallet and compel the transfer of the cryptoassets to an address that they control, robbing the trust property. For this reason, the author recommends that recovery phrases be stored either in traceable, encrypted archive locations digitally or, better yet, stored in hard copy in a location that is not easily accessible by the trustee. Ideally, the phrase should be broken into parts and stored in more than one location, and these locations should be routinely inspected to confirm that the recovery phrase fragments are still where they ought to be.
HANDLING THE PROCEEDS OF CRIME WHEN DEALING WITH DIGITAL ASSETS
It is, of course, important to be sure that digital assets being received are not the proceeds of crime. However, something that gets overlooked is a situation where a settlement is in cash and the settlor's wishes are for that cash to be invested into digital assets, or a situation where the trustee is instructed to sell digital assets to realise a capital gain. This is the same as dealing with, say, fine art: the trustee needs to be confident that their counterparty is legitimate and that they are not (or are unlikely to be) being paid using the proceeds of crime, and the market is likely to require some kind of specialist intermediary with knowledge of how the market operates.
NFTs are not just digital artworks—and this is a problem
Non-fungible tokens (NFTs) pose additional concerns. This is because it is both entirely possible and often encouraged for NFTs to be created with a third-party payment code. The intention of such code is that the creator effectively gets an in-kind "royalty" for each time the NFT is transferred for other cryptocurrency; however, the trustee will need to verify (a) whether this is present in any NFT, and (b) the third party who is being paid. This is entirely doable, but because this adds to planning considerations and due diligence requirements, this author generally recommends that, in practice, trustees avoid accepting NFTs as trust property until they have become comfortable with and developed a level of expertise in digital assets generally.
Buying digital assets
It is conceptually simple for a professional trustee to use settled cash to invest in digital assets pursuant to a letter of wishes. This is most easily done by investing in an intermediary vehicle, such as an investment fund; however, there is no reason that a trustee cannot, whether by itself or via an agent, simply purchase digital assets from a seller.
As with selling, the act of buying digital assets is much like the act of buying gold bullion, fine artwork, or a classic car: the risk is that the seller transfers the proceeds of crime to the trustee, and it is mitigated by due diligence of a counterparty.
The unique problem with digital assets is that it is entirely possible to acquire cryptocurrencies from pooled funds of unknown counterparties, and this can pose a unique issue to be managed. As stated earlier, it is possible to trace the provenance of these digital assets using the correct software, so pooling can be identified and risks mitigated; but the trustee would need to plan for it or put in some other mitigation whereby it relies on another party doing this, ideally a regulated one.
Of course, a decision by a trustee to purchase digital assets also needs to be justifiable by the trustee as an investment decision. It is certainly not unheard of for a trustee to be sued by a beneficiary for investment losses arising from risky investments, which were entered into at the request of the settlor/beneficiaries. Whether Bitcoin is necessary still "volatile" in a world where the Morningstar UK Gilt Bond index13 fell 25.93% in Sterling capital value between 31 December 2021 and 30 August 2022 is open to argument, but it is a reality that most other digital assets—cryptocurrencies and otherwise—have a volatile value.
Centralised exchanges and prime brokers
In the early days of Bitcoin, purchasers had to meet sellers in person, pay cash, and in exchange, the seller would use the Bitcoin network to transfer the bitcoin to the buyer's wallet address. This often meant meeting someone in public and paying them physical cash while the seller used their laptop to make a transaction, or hoping that the seller would go home and then make the transfer. Fortunately for the professional trustee, this is now rare.
The safest way for a professional trustee to purchase bitcoin today is by approaching a prime broker in a reputable jurisdiction that the trustee is comfortable doing business in. The counterparty for the transaction would be the broker themselves, who—being under regulatory scrutiny—is likely to conduct due diligence on the digital assets it buys, minimising the risk that the trustee will be buying stolen bitcoin. This is typically the most expensive way to conduct a transaction, and settlors and beneficiaries sometimes baulk at paying the broker's fees, which are typically a percentage of the transaction value.
The next safest way is to approach a digital assets exchange that is operated by a company regulated in a jurisdiction that the trustee is comfortable with. This type of exchange is called a Centralised Exchange, particularly with cryptoassets. However, not all centralised exchanges are created equal. Some operate on a model whereby the counterparty to any contract is the Centralised Exchange, whereas others operate on an order-matching basis where the parties to any contract are two entities that do not otherwise know each other. Many exchanges offer multiple different services, but each is provided by a different counterparty, and the trustee should be aware of who they are dealing with for any transaction. Centralised Exchanges do not all agree on the nature of sanctions that they observe, so on an order-matching basis, the trustee could be contracting with someone that is sanctioned in their jurisdiction without realising this, creating a regulatory risk.
As a result, carefully selecting counterparties is important for a professional trustee. This requires conducting an analysis of the terms by which the trustee will be dealing with the Centralised Exchange or broker. In the same way that due diligence reports can be compiled prior to buying a company or making an investment in a collective investment scheme, a trustee can approach legal counsel with specific knowledge of digital assets to help with conducting due diligence of potential counterparties and identifying which counterparties the trustee feels comfortable doing business with.
Decentralised counterparties
Settlors and beneficiaries with a lot of experience in cryptoassets will likely want a professional trustee to use a decentralised exchange (a Dex) to buy and sell digital assets where able. This is because the transaction fees for a Dex, whether buying or selling, are typically 0.1%–0.3%, and transactions settle at the speed of the blockchain network, which is between a few seconds and fifteen minutes. It is also possible to invest in the smart contract liquidity pools to generate capital growth. This is done by making deposits into the liquidity pools (often called staking—not to be confused with delegated staking) such that the smart contract shares its fees with the depositors into the pool, and at the point of withdrawal, the depositor has theoretically seen a growth in their deposit.
Decentralised finance (DeFi) is beyond the scope of this article, but trustees dealing with digital assets should be aware that this is a possibility.
The problem regulated parties have with a Dex is that it operates by a smart contract that manages deposits into and withdrawals from a pool of cryptoassets. The rules are governed entirely by code, and any interactions are at the user's risk; recourse for smart contracts failing is quite limited. This means that the trustee needs a degree of confidence in the smart contract itself.
A further issue arises in that access to the smart contract is generally permissionless, meaning that an unknown party might have deposited the proceeds of crime into the managed pool, because the smart contract does not differentiate between users. Effectively, the trustee needs to accept responsibility for conducting their own due diligence on the smart contract, which means they need a reasonable degree of knowledge and the willingness to bear the risks of losing the trust property to a poorly coded smart contract and the ability to bear any regulatory or legal sanction from inadvertently accepting tainted funds when interacting with the Dex.
It is possible to use software to conduct due diligence on a smart contract on a Dex. Smart contracts, like user wallets, have a public address on a blockchain network, and the same software that can check what other addresses a wallet has interacted with can also check what wallets have interacted with a smart contract on a Dex. The technological solution is there to mitigate the risk, but the trustee will still retain the responsibility if things go wrong.
As a result, while the use of a Dex is highly coveted by digitally native clients, the level of confidence that a professional trustee needs to have to safely use one is quite high. It may be advisable for the majority of professional trustees to simply have a policy of avoiding any Dex for the time being.
MANAGING THE TRUST PROPERTY
Delegated staking and passive yield
A Dex may be a bridge too far due to concerns about handling the proceeds of crime, but many cryptoassets can be used for delegated staking. This is a common practice and typically generates a fairly low-risk yield in newly created tokens or coins for the user making the delegated stake.
On a proof-of-stake blockchain, which is now most smart contract capable blockchains, there are no miners. Validator nodes, which are effectively specialised computer servers, monitor transactions and check each other for fraud. In exchange, they are randomly selected—albeit by a weighted probability—by the protocol to receive a reward of newly minted tokens. To be eligible to act as a validator node, the node has to put up collateral, which the protocol seizes if the validator node is offline for a period or found to otherwise be fraudulent or misbehaving (called being slashed). The bigger the collateral, the greater the probability that the validator node is selected for a reward. To increase the collateral, other users are able to "delegate" their tokens as part of the collateral to the validator node, meaning that the node has a bigger collateral as a result. The validator node cannot take the collateral that has been delegated and has no control over it. In exchange, the validator node shares its reward with the users who delegated a stake of collateral to it, but users need to choose validators carefully because if a validator node is slashed, then the user's collateral is slashed, too.
It is incredibly simple to participate in delegated staking. There is generally a lock-in period, usually 28 calendar days, but delegating is as simple as logging into wallet software, clicking one or two menu buttons, choosing a validator node, and then signing a simple delegation transaction. Risk of loss can be managed by diversifying across different validator nodes and by investigating the reputation of the validator node operator. Many operators are established companies that are transparent about their performance, which users can, of course, verify from the publicly available data on the blockchain. This makes conducting reasonable enquiries relatively straightforward for the trustee as compared to some other digital assets.
It is also possible to conduct delegated staking via a Centralised Exchange. Many offer this and operate their own validator nodes to do it; however, the rewards are generally lower, and the trustee should confirm how the specific arrangement will operate. Some Centralised Exchanges allege that they will conduct delegated staking, but in fact accept the digital assets as a loan deposit that they then rehypothecate or otherwise lend out. This is sometimes also referred to as "passive rewards", "passive yield", or "yield staking", and it is typically a loan arrangement. As with other activities performed on a Centralised Exchange, it is entirely possible for a trustee to ask a lawyer with experience in digital assets to conduct due diligence on contract terms offered by a Centralised Exchange that offers any kind of delegated staking or any other kind of "reward" or "yield" product.
Scams and digital assets
Much has been said about scandals, scams, and criminal activity within digital assets as an asset class. The lack of regulated intermediaries means that participants in the space are entirely responsible for their own actions, and this naturally means that the fear of falling foul of nefarious activity is forefront in the minds of trustees considering accepting digital assets as trust property. However, with the exception of DeFi exploitation, all digital assets scams and crimes are in fact traditional scams and crimes that simply involve digital assets. For example:
- The FTX exchange collapsed simply because it was taking customer assets that were held on its platform and spending them while representing that it had assets to remain solvent.14 That is not a digital assets fraud: that is a regular fraud that happened to involve digital assets.
- Bybit was exploited by a hacker who phished an employee to gain access to their computer and, thereby, set up an authorised push payment scam.15 This is a traditional scam.
- Terra Luna and the TerraUSD stablecoin failed because the mechanics of the stablecoin were reliant on exploitable market dynamics. It was effectively a bank run.16 Simple due diligence of the terms by reading the public documents would have revealed the risk of this happening.
- Memecoin "rugpulls" (which typically means selling a token, encouraging or generating market euphoria to boost the price, then selling a stockpile held as the creator for personal gain at the expense of crashing the free market valuation of the token due to supply and demand characteristics) are simple market manipulation. These are only possible because there is no central market authority that could pass a rule limiting positions that would destabilise market value, such as the COMEX rule 55917 or those required in the European Union under Article 57 of MiFID II.18 A check of publicly available blockchain information generally reveals this risk.
The common thread through all digital assets scams is that the victim is enticed into buying something that they do not understand and do not make an effort to investigate. The victim does not appear to do their due diligence. Applied to a professional trustee: one would not expect a trustee to invest trust assets into any investment fund or other asset without doing their due diligence and making an assessment of the merits and risks. Digital assets are no different.
Just like with any other alternative asset, there are ways for a trustee to get an expert opinion or to ask an expert to feed into the trustee's own risk assessment. It is conceptually no harder for a legal professional to read a cryptoasset whitepaper, the terms and conditions of a digital assets exchange, or any other contractual terms for any other intermediary party, than it would be for the same legal professional to provide a summary of critical terms of an investment fund document. The skills are the same, and many are developing an expertise in this area. It is merely the context that has changed.
A key consideration for trustees in discharging their professional duties will always be whether they have taken, and followed, suitable professional advice. That applies across the board, and is no different when it comes to digital assets.
Residual risks
The only problem that cannot be mitigated by a trustee when it comes to digital assets is the problems inherent in the product. Digital storage media degrade or become obsolete. Digital files become corrupted. Whole file types become obsolete over time. Smart contract coding can be erroneous or can be exploited. These are legitimate logistical issues, but product issues are not unique to digital assets and are simply a feature of all alternative asset investments. Fine wines famously require, amongst other things, temperature and humidity control, reduced exposure to light, a balanced air quality, and a minimum of vibration19 throughout their storage life that is often impossible to verify at the point of acquisition. Classic cars can suffer corroded paintwork, tyre flat spots, mildew, and even mechanical failures such as degrading fuels and lubricants left in situ,20 yet most professional trustees do not have mechanics on staff.
Ultimately, settlors and beneficiaries who invest in such alternative assets are already used to accepting a degree of product risk. It is accepted that a trustee cannot be expected to be the perfect expert on every asset class. A trustee cannot reasonably be expected to be able to code in the Rust coding language and read smart contracts, nor is the trustee likely to understand how best to preserve a Commodore 64 for future generations. However, trustees are similarly not expected to be art curators, mechanics, keepers of rare animals, sommeliers, or any other alternative asset expert. Just like with other types of alternative assets, the trustee's duty is best met by procuring assistance from and considering the opinions of experts in the digital assets field. Managing their risk appropriately. The same protections that a professional trustee would ordinarily put in place for other alternative assets would also work with some modification to digital assets.
Insurance is now available for the storage of digital assets, including cryptoassets. Several custodians offer such insurance cover as part of their services, which may give a professional trustee peace of mind if their primary concern is to cover contingent risks.
Digital assets are not "all or nothing"
Crucially, there is a false perception that trustees must be "in or out" of digital assets offerings. There is no requirement for a trustee to make its services available for all digital assets purely because one client wishes to settle bitcoin into trust. There is no reason that a trustee could not take a nuanced position, only accepting certain structures and certain digital assets as and when its level of experience and comfort grows. If a trustee does not understand DeFi, but it is comfortable with a simple buy-and-hold strategy using a third-party custodian, that is already a significant offering. For many clients, it would solve their estate planning problems. The savvy professional trustee could simply establish clear policies and operational procedures for what it is and is not comfortable with, and these can be reviewed over time as the trustee builds their knowledge and levels of comfort.
It is clear that a professional trustee's fiduciary and regulatory duties will cause friction with holding digital assets. What this article hopes to have illustrated is that these issues are not conceptually different from many types of alternative assets, that the risks can be mitigated by practical measures that ought to feel familiar to professional trustees, and that any digital assets capability could be built over time rather than launched as a complete offering.
Footnotes
1 PwC 19 November 2024 Asset and wealth management revolution 2024: Unleashing the transformative power of disruptive technology [accessed 1100hrs 21 March 2025 at https://www.pwc.com/gx/en/issues/transformation/asset-and-wealth-management-revolution.html]
2 BNY Mellon 11 October 2022 BNY Mellon Launches New Digital Asset Custody Platform [accessed 1114hrs 21 March 2025 at https://www.bny.com/corporate/global/en/about-us/newsroom/press-release/bny-mellon-launches-new-digital-asset-custody-platform-130305.html]
3 The White House 6 March 2025 Establishment of the strategic bitcoin reserve and United States digital asset stockpile [accessed 1118hrs 21 March 2025 at https://www.whitehouse.gov/presidential-actions/2025/03/establishment-of-the-strategic-bitcoin-reserve-and-united-states-digital-asset-stockpile/]
4 Aspen Digital Limited October 2024 Asian Private Wealth in Digital Assets: Perspectives from Family Offices, HNWIs and Asset Managers [accessed 1124hrs 21 March 2025 at https://sbidm.com/wp-content/uploads/2024/10/Oct2024_Asian-Private-Wealth-in-Digital-Assets.pdf]
5 The Internet Archive [accessed 1245hrs 15 April 2024 at https://archive.org/about/]
6 C Lagarde 13 March 2018 Addressing the Dark Side of the Crypto World, IMF Blog [accessed 1327hrs 21 March 2025 at https://www.imf.org/en/Blogs/Articles/2018/03/13/addressing-the-dark-side-of-the-crypto-world]
7 L Napolitano 21 October 2024 Fed President Says Crypto 'Almost Never' Used Outside of Drug Deals, Illegal Activities, Decrypt [accessed 1331hrs 21 March 2025 at https://decrypt.co/287542/fed-president-crypto-drug-deals-illegal-activities]
8 Financial Conduct Authority InvestSmart 10 May 2024 Crypto: The basics [accessed 1336hrs 21 March 2025 at https://www.fca.org.uk/investsmart/crypto-basics]
9 Various authors December 2023 Bailiwick of Guernsey: 2023 National Risk Assessment: Report on Money Laundering, Terrorist Financing and Proliferation Financing [accessed 1358hrs 21 March 2025 at https://www.gov.gg/CHttpHandler.ashx?id=174174&p=0]
10 Chainalysis Team 15 January 2025 2025 Crypto Crime Trends: Illicit Volumes Portend Record Year as On-Chain Crime Becomes Increasingly Diverse and Professionalised [accessed 1404hrs 21 March 2025 at https://www.chainalysis.com/blog/2025-crypto-crime-report-introduction/]
11 TRM Labs 2025 2025 Crypto Crime Report: Key trends that shaped the illicit crypto market in 2024 [accessed 1410hrs 21 March 2025 at https://cdn.prod.website-files.com/6082dc5b670562507b3587b4/67a66929a076faf602d64b4c_TRM%202025%20Crypto%20Crime%20Report.pdf]
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Originally published by Oxford University Press
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