What Is Crypto Asset Protection?
When you invest in digital assets - including Bitcoin, Ethereum, DeFi tokens, stablecoins, NFTs, and other cryptocurrency holdings - you need a solid crypto asset protection plan. At Blake Harris Law, we combine advanced legal tools with traditional asset protection methods to keep your digital assets safe, whether you hold cryptocurrency in a personal wallet, through an exchange, or within a digital asset protection trust.
Many people view their crypto investments as a wealth protection strategy thanks to the flexibility and privacy of crypto. However, if someone takes legal action against you, a court could order you to pay all of your crypto holdings, including cold storage wallets, to a creditor. Whether you hold your cryptocurrency as a private individual or a limited liability company, you must report all crypto transactions to the IRS and pay capital gains tax on any value increases in your crypto assets.
Why Should You Consider Crypto Asset Protection?
As a crypto investor, you should create a solid plan for shielding your holdings because:
- Crypto assets are valuable. Like other investment assets - stocks, bonds, real estate, and metals - cryptocurrency can help secure your financial future. Crypto also has a high potential for appreciating in value, making it a promising holding you may want to leave to your beneficiaries.
- Shield yourself from legal claims. Your crypto holdings are vulnerable to creditors, professional lawsuits, and divorce claims unless you protect them. We can help you develop a solid crypto protection plan to safeguard your assets in a legal crisis.
- Crypto is not as private as you may think. While crypto offers a higher level of privacy compared to other investments, a court order could force you to disclose all your holdings.
- Ensure legal compliance. Working with a reputable crypto asset protection lawyer ensures you use lawful strategies and avoid tax complications.
Cryptocurrency Asset Protection: An Overview
Cryptocurrency has recently become a financial asset from which investors are gaining high returns. Since cryptocurrency continues to increase in value, it is important to protect and understand the ways you can safeguard these digital assets.
The IRS has deemed cryptocurrency a taxable asset, classifying it as property. As property, this means it can be a target of legal action, resulting in the loss of cryptocurrency assets - which can be in the hundreds of thousands or millions in digital currency. Protecting your crypto assets is vital to ensuring that if your assets become the target of legal action, they will have extra layers of security.
Cryptocurrency Asset Protection Options
Offshore Asset Protection Trust
An offshore asset protection trust is an effective tool for protecting assets from future lawsuits and potential creditors. A trust is established under the laws of a foreign country and managed by a professional trustee not subject to the jurisdiction of the settlor's home country.
At Blake Harris Law, we utilize offshore asset protection trusts through the Cook Islands, a small country in the South Pacific. Placing assets in a trust not only protects them from creditors, but also from lawsuits you could face. Key advantages of Cook Islands Trusts include:
- The Cook Islands legal system is based on English common law with legal institutions of a first-world nation
- The Cook Islands do not charge taxes on assets held under a trust
- There is a two-year statute of limitations on all creditors that bring an action against you or the trust
- A Cook Islands Trust can protect assets not located within the islands - you can transact electronically
- The Cook Islands do not recognize foreign judgments
Domestic Asset Protection Trust
A domestic asset protection trust (DAPT) is a legal structure that allows you to protect your assets from legal threats. A DAPT is an irrevocable trust in which the beneficiary can be the same person who created the trust, and the trust's assets are shielded from that individual's creditors.
While business owners have traditionally protected themselves using LLCs or corporate entities, a DAPT allows individuals to protect personal assets as well as business or investment assets. DAPTs also provide protection from legal complaints, malpractice claims, and a host of other financially consequential events.
Taxes on Cryptocurrencies
If you are a U.S. person for tax purposes, federal law requires you to report cryptocurrency transactions and pay taxes on any realized gains. The IRS treats cryptocurrency as property, which means transactions usually result in capital gains.
- Sales or dispositions of cryptocurrency are taxed based on the proceeds minus the cost basis
- Exchanging one cryptocurrency for another is a taxable transaction
- Those receiving cryptocurrency from mining or staking are generally taxed as ordinary income
- People being paid in cryptocurrency must report the currency's fair market value as taxable income
DeFi Broker Rule Nullification: A Major Win for Crypto Privacy
On April 10, 2025, President Trump signed H.J. Res. 25, nullifying the IRS DeFi broker reporting rule through the Congressional Review Act (CRA). This was the first time in history that the CRA was used to overturn a tax regulation, marking a watershed moment for the digital asset industry.
The nullified rule would have required decentralized finance (DeFi) platforms to collect and report user transaction data to the IRS - essentially treating DeFi protocols as brokers subject to the same reporting obligations as centralized exchanges.
For crypto asset protection planning, this development preserves significant privacy benefits. Individuals who interact with DeFi protocols - including decentralized exchanges, lending platforms, and yield farming protocols - retain a greater degree of transactional privacy. However, individual taxpayers remain responsible for reporting their own cryptocurrency transactions.
IRS Safe Harbor for Trusts That Stake Digital Assets
In 2025, the IRS issued Revenue Procedure 2025-31, establishing a groundbreaking 14-part safe harbor for trusts that hold and stake digital assets. Key provisions include:
- Grantor Trust Classification Preserved: Trusts that qualify as grantor trusts may engage in proof-of-stake validation without losing their grantor trust status
- Asset Ownership Retained: The trust retains full ownership of staked assets at all times
- Clear Tax Treatment: Staking rewards are treated as income to the grantor, consistent with the trust's pass-through tax treatment
- Custody Requirements: Specific custody and record-keeping requirements for trusts when staking
Why Work with Blake Harris Law?
Attorney Blake Harris is passionate about helping you protect your assets from lawsuits. Before founding Blake Harris Law, Blake worked for one of the largest wealth management firms in the United States, where he helped high and ultra-high-net-worth clients protect their personal assets.
Over the years, Blake has built and continues to nurture a vast network of legal and finance professionals in countries such as Belize, the Cayman Islands, the Cook Islands, Liechtenstein, New Zealand, Panama, St. Kitts and Nevis, and Switzerland. Whether you are looking to set up an offshore trust, establish a foreign limited liability company, or protect your digital assets, Blake will work hard to protect your wealth.
Contact Blake Harris Law