01 April 2025
Article
It is no secret that the world of digital assets is no longer a niche curiosity—it’s a burgeoning financial ecosystem that’s reshaping wealth management globally. As of early 2025, the total cryptocurrency market capitalization has soared to approximately $3.28 trillion, a staggering 98.8% increase from $1.65 trillion in January 2024, according to CoinGecko data. Bitcoin alone, the bellwether of the crypto market, commands a market cap exceeding $1.4 trillion, having crossed the $100,000 threshold in December 2024—a 115% annual gain fuelled by institutional adoption and regulatory milestones like the approval of spot Bitcoin ETFs in the U.S. Ethereum, too, has seen its value climb by 44% in 2024, bolstered by its own ETF approvals and technical upgrades. These metrics underscore a seismic shift: digital assets are not just here to stay, they’re becoming a cornerstone of modern portfolios.
Some of the recent structures that we have set up to hold digital assets and crypto-related structures, have been an eye-opening experience and an opportunity to delve deeper into structural considerations. Learning as we go, this article is aimed at sharing some of what we have encountered on this journey.
Understanding: The Bedrock of Risk Assessment
Crypto assets, with their volatility, regulatory ambiguity, and technical complexity, demand a nuanced approach.
Without sufficient insight, risk assessment becomes a guessing game; either overestimating the peril, resulting in the potential client being turned down, or underestimating it, leaving gaps in safeguards that could expose trustees and beneficiaries alike. Having an open-minded attitude and willingness to keep learning is crucial when approaching these structures as the ability to properly assess the risks hinges greatly on the degree of understanding of the broader context and particular structure.
Self-Study and Expert Networks: A Dual Approach
Drafting a trust deed for crypto assets isn’t something you can do by rote. It demands active self-education and, more critically, expert collaboration. We spent time developing our insight on the commercial and technical facets of digital assets: how blockchain works, the mechanics of custody, and the economic drivers behind coins like Bitcoin and Ethereum. This foundational knowledge helps, but building a network of advisors—crypto specialists, legal experts, and tech-savvy consultants—is the game-changer. Their insights accelerate our learning curve, ensuring that our trust structures are not only compliant but also robust and tailored to the unique demands of digital assets. For instance, understanding private key management or the implications of cold storage wallets became far clearer with expert input, helping make our trust deeds as fit-for-purpose as possible and client-focused.
Knowing the Client: A Universal Principle Amplified
In traditional trust structures, understanding a client’s goals, business, and succession plans is fundamental. With crypto assets, this principle is amplified. The landscape is rife with ‘unknown unknowns’—risks that don’t surface in conventional setups, like wallet security breaches or regulatory shifts impacting asset value.
We’ve made it a priority to dig deep into our clients’ philosophies: Are they betting on long-term growth? Traders seeking liquidity? Visionaries aiming to pass a digital legacy to the next generation? This clarity informs every clause of the trust deed, from asset allocation to succession provisions, ensuring the structure mirrors their intent while navigating the crypto-specific uncertainties.
SOW and SOF: From Reluctance to Revelation
Verifying Source of Wealth (SOW) and Source of Funds (SOF) has long been a stumbling block for providers considering crypto asset structures, often fuelling reluctance owing to a break with traditional client due diligence (CDD). From relying on bank states to delving into wallet addresses, exchange accounts, mining, staking or early ICO investments and due to concerns of heightened AML and CTF risks. The opacity of crypto transactions, coupled with their association with illicit activities in the early days, made many wary of diving in. Yet, we’ve discovered a surprising twist: in certain cases, SOW and SOF in the crypto context can actually be superior to traditional methods.
Take, for example, a client employing a long-only (buy-and-hold) strategy. If the fiat currency used to purchase the crypto—say, Bitcoin or Ethereum—is clearly traceable at the point of investment, and blockchain records confirm no additional funds were introduced thereafter, the transparency of the ledger provides a verifiable trail that’s hard to rival. This clarity not only mitigates AML/CTF concerns but can elevate due diligence to a level of precision that traditional structures might envy, turning a perceived weakness into a strength.
Structural Choices: Balancing Flexibility and Security
When it comes to structuring a crypto holding trust in Guernsey, a hybrid trust-and-company model is typically used for ring-fencing risk. The trust holds the overarching beneficial interest, while a company acts as a custodian or investment vehicle, isolating liabilities and streamlining management. However, direct trust ownership is also viable, especially when paired with reserved powers for the settlor.
These powers, such as the ability to direct investment decisions or oversee custody arrangements, mitigate risks like exchange hacks or mismanagement while preserving the trust’s protective framework. Drafting these provisions requires specialist lawyers and careful calibration to balance settlor control with trustee oversight, yielding a structure that’s secure and adaptable to the crypto market’s dynamism.
A Provocative Question for the Future
As we refine our approach, a colleague recently posed a thought-provoking question: Will there come a time when failing to include digital assets in trust structures could expose trustees to claims of recklessness? As crypto adoption accelerates (evidenced by the trillions in market cap and institutional embrace of Bitcoin and beyond) beneficiaries might one day argue that trustees who shunned these assets ignored a global shift, jeopardizing wealth preservation. This hypothetical highlights why we’ve embarked on this journey. By mastering crypto trust structures today, we’re not just servicing clients—we’re looking to prepare for a world where digital assets may become the norm.
Authored by Nel Schoeman
E: nel.schoeman@invictawealthsolutions.com T: +44 1481 742 097