Crypto’s use as a new type of asset raises very old questions about holding and protecting (digital) assets: Who holds or controls them, and how can they be protected for an extended period of time? Because crypto will eventually become an integral component of the worldwide investor portfolio, the legal aspect of securing and managing assets (custody) is gaining interest.
It is here that international jurisdictions such as Belize, Seychelles, and Nevis come into play. All three have a long-standing reputation for their expertise and involvement in global financial structuring & offshore trusts, with growing discussion of their ability to assist with digital asset management.
Key Takeaways
- Laws that govern crypto custody define what it means to store, maintain, and safeguard cryptocurrencies by custodians (financial structures) or other financial entities.
- Regulatory flexibility and the presence of the International Financial Services Sector make Belize, Seychelles, and Nevis popular locations for related entities to operate their crypto-related activities.
- The use of these three countries’ jurisdictions has increased as they now often combine offshore trusts to help protect and control digital assets.
- Nevis’s offshore asset-protection trust framework is among the strongest in the world and provides an ideal vehicle for holding digital assets.
- When developing your own international digital asset management strategy, it is imperative that you understand local laws and regulations, as well as the types of storage/custody options available.
What Is Crypto Custody and Why It Matters
Crypto custody (also referred to as cryptocurrency storage) represents the secure and accountable storage and/or management of an investor’s (or user’s) private cryptographic keys, which give them (the holder) ownership and control over their respective cryptocurrency or other digital assets (such as Ethereum or Bitcoin).
In essence, whoever possesses the private key(s) has effective control over the digital asset.
Custody of cryptocurrencies comes in two basic forms:
- Self-custody: the investor/user retains complete control and management of all of his/her private keys and related information.
- Third-party custody: a licensed third party acts as a custodian of an investor’s/crypto user’s digital assets; this provides both physical and technical security measures as well as legal liability for the safekeeping of those assets.
Many investors/institutions prefer third-party custodial services for regulatory oversight, anti-money laundering compliance, and the inherent protections of using a reputable custodian.
Regulatory requirements for crypto custody serve to establish:
- The types of entities (individuals or companies) that are permitted to act as custodians of digital assets owned by others;
- Applicable licensing requirements for custodians;
- Requirements for compliance with anti-money laundering standards;
- Liability for protecting assets from loss or theft.
Digital assets may also be placed into trust structures outside of traditional bank-based financial systems. These include digital asset trust structures established in offshore jurisdictions (i.e., jurisdictions outside of the country where the investor resides).
Within these offshore trusts, the trustee is responsible for managing the digital assets held for the benefit of one or more beneficiaries. For example, digital wallets can be created under an overarching offshore wealth management framework.
How Major Regulators Define Crypto Custody
Regulatory bodies are increasingly making distinctions between self-custody and third-party custody of digital assets. The U.S. Securities and Exchange Commission (SEC) and most state regulatory bodies will primarily determine whether there are compliance issues by identifying the person(s) controlling private key(s) and/or whether an entity holds its customers’ digital assets.
Likewise, the FATF has treated many custodial cryptocurrency businesses as Virtual Asset Service Providers (VASPs), which obligates these entities to implement anti-money laundering controls, conduct customer due diligence, and monitor transactions.
An investor using an offshore company or trust needs to recognize that a custody arrangement may be subject to compliance obligations in their country of domicile, regardless of where they have structured their holding.
Institutional vs Retail Crypto Custody
Retail investors use self-custody wallets, whereas institutional custody relies increasingly on insured, regulated custodians. Institutional custody providers commonly provide multi-signature control, segregated client assets, a cybersecurity framework, and regulatory-compliant reporting for clients.
Regulators worldwide are developing standards as the digital asset market continues to mature regarding custodial services that protect clients’ assets.
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Why Island Jurisdictions Are Popular for Crypto Structures
Many people in the cryptocurrency world operate internationally. In many cases, founders, traders, investors, and others manage their assets, companies, or bank accounts across multiple countries around the globe. As such, there is a need for flexibility in the law regarding those involved in cryptocurrency. Therefore, it is commonplace for certain island financial centers (such as Belize, Seychelles, and Nevis) that have been developing relationships with international businesses, offshore companies, and trusts over the last few decades to be discussed as potential options by individuals seeking to structure and protect their digital assets.
Those three jurisdictions also offer an environment in which their relatively flexible financial laws and long-standing frameworks for protecting assets could provide opportunities for investors with larger amounts of cryptocurrencies. Those investors may use these jurisdictions in combination with other parts of their overall structure to help organize their ownership and manage their assets across borders.
Crypto Custody Laws in Belize
The Belize regulatory environment has evolved over time to accommodate newer financial technologies, including cryptocurrencies. The oversight of the financial services sector is carried out by the Belize International Financial Services Commission (IFSC), which is responsible for regulating licensed financial service providers operating in Belize.
Although Belize does not currently have a regulatory framework for digital currencies, it has historically adopted an open and permissive regulatory policy that provides flexibility for fintech businesses and international financial structures to access the market using the existing regulatory framework.
The main elements of Belize’s policy include:
- Oversight by the IFSC of licensed financial service providers
- Regulatory requirements applicable to some financial and/or investment activities
- Obligations related to compliance with the international Anti-Money Laundering (AML) and Know Your Customer (KYC) Standards
- Support for the use of international business structures
As a result of this openness, Belize is often used as a platform to provide support for companies engaged in cryptocurrency/fintech; at times, however, the owners of these digital assets will organize them using additional structures (e.g., a holding company or an offshore trust) to hold/own those digital assets.
Belize Crypto Regulation Overview
| Feature | Belize |
| Primary regulator | International Financial Services Commission |
| Crypto-specific legislation | Developing |
| Corporate structures | Widely used |
| Compatibility with offshore trusts | High |
Because Belize already hosts a large offshore financial sector, it can play a role in international crypto structures when combined with broader asset management strategies.
Crypto Custody Laws in Seychelles
Seychelles is one of many offshore financial centers, but it is also one of the most popular locations for companies that are working with cryptocurrencies. The FSA (Financial Services Authority) regulates this location, which also houses many international businesses.
Several global exchanges and new digital asset start-ups have been drawn to this location by its highly flexible regulatory environment.
Even though Seychelles has no legislation on digital assets that covers all areas of crypto custody, the regulation does allow companies in the cryptocurrency industry to create legal entities under a corporate structure.
Some important features of the regulatory environment in the Seychelles include:
- Regulated by the Financial Services Authority
- International business company structures that can be used by a variety of crypto-related companies
- AML compliance with international standards
- A very flexible regulatory environment for companies involved in digital assets
Seychelles Crypto Regulation Overview
| Feature | Seychelles |
| Primary regulator | Financial Services Authority |
| Crypto business presence | Significant |
| Corporate flexibility | High |
| Offshore trust compatibility | Available |
Because of this environment, Seychelles is frequently used as a base for crypto startups, exchanges, and blockchain projects. In some cases, founders may combine corporate entities with offshore trusts to manage ownership of digital assets and intellectual property.
Crypto Custody Laws in Nevis
Although Nevis is best known for its well-structured legislation protecting offshore trusts and their assets, there are still many other options available to those who wish to establish a structured wealth protection environment for cryptocurrencies.
The primary statute governing the creation of trusts in the jurisdiction is the Nevis International Exempt Trust Ordinance (NIETO), which protects trust assets and maintains confidentiality regarding the terms of the trust arrangement.
Therefore, Nevis has become one of the most popular jurisdictions among private clients and corporate entities seeking to create offshore trusts that include multiple types of assets, such as cryptocurrencies.
Nevis Crypto Structuring Environment
| Feature | Nevis |
| Primary strength | Asset protection |
| Trust legislation | Very strong |
| Crypto business presence | Moderate |
| Offshore trust compatibility | Excellent |
In addition to using offshore trusts in Nevis to protect their digital assets by structuring them as part of an international trust, individuals can have their cryptocurrency investments placed under the management of trustees who provide the necessary protections afforded by a legal system.
Comparison: Belize vs Seychelles vs Nevis
Both Belize and Seychelles (as well as many other countries) also provide similar environments for crypto companies/exchanges; however, neither is as protective of long-term crypto asset protection as Nevis.
| Factor | Belize | Seychelles | Nevis |
| Crypto regulatory environment | Developing | Flexible | Limited direct regulation |
| Corporate structures | Widely used | Widely used | Available |
| Trust structures | Available | Available | Highly developed |
| Asset protection focus | Moderate | Moderate | Strong |
How Offshore Companies Can Hold Crypto Assets
Digital assets can be included in the traditional wealth management framework (including offshore trusts). A traditional offshore trust is one in which the trust holds legal title to an asset, while trustees have the authority to manage it for the benefit of beneficiaries.
Regarding crypto holdings, this typically involves establishing control over private keys/digital wallet(s) as part of the overall trust structure. An example of a simple framework is as follows:
Crypto asset → digital wallet → trust ownership → trustee oversight
The advantage of this type of framework is that it provides several benefits, such as:
- Asset protection
- Wealth planning over the long term
- Succession planning for digital assets
- Portfolio management internationally
Offshore companies have been established and utilized for a multitude of financial assets; therefore, the inclusion of cryptocurrency holdings is a logical extension of the existing structures.
Crypto Inheritance and Succession Planning
A significant challenge to cryptocurrency is how a successor will be identified to access/transfer ownership when an investor dies or loses capacity (to manage their affairs), since it would appear that no mechanism exists in most systems for anyone to recover private keys if lost/accessibility is compromised after an investor’s demise/incapacitation. Offshore trusts are often used as part of larger estate plans because they allow for specific processes for trustee monitoring, beneficiary distributions, and long-term cryptocurrency asset management.
Planning is critical for investors with large amounts of cryptocurrency held across multiple jurisdictions.
Risks and Compliance Considerations
Crypto offers many benefits for international investment, but it also entails regulatory responsibilities. All parties involved with cross-border digital investments will be subject to compliance issues and evolving laws.
These are some of the top considerations for investors looking at cryptocurrency:
- Anti-money laundering (AML) regulations
- Identity verification (KYC) process
- Tax implications for investing in multiple jurisdictions
- Evolving cryptocurrency laws
- Security risks associated with managing your private key.
Investors should note that, as far as most of the world is concerned, crypto law is still being developed. As such, all parties involved with digital assets can expect evolving laws and compliance issues.
Example Scenario: Crypto Assets in an Offshore Trust
An investor who has been accumulating a substantial amount of their own cryptocurrency for years may face practical issues when they hold all of it personally (e.g., in their personal wallets). For example, how secure will they be in protecting their investment? What will happen to those investments after the investor’s death?
To formalize matters, the investor establishes an offshore trust in Nevis. The trust then formally takes ownership of one digital wallet containing the cryptocurrencies.
A sample of the way the structure could be set up is as follows:
- Transfers of cryptocurrencies are made into a specific wallet designated for use by the trust
- The trust now owns that wallet legally
- The trustees have the authority to control and administer the assets in accordance with the terms stated within the trust document
- Distributions to beneficiaries can occur subject to the terms and conditions established within the trust agreement
If at some point in time the investor ceases to manage the portfolio of cryptocurrencies (whether temporarily or permanently), the trustee will continue to administer the trust and therefore ensure that there is continuity in regard to the management and administration of the cryptocurrency investments and therefore maintain the integrity of the original plan for managing those investments.
Summary
Laws governing the storage, maintenance, and security of digital assets within a jurisdictional framework determine what is possible for digital asset storage, management, and security. Some countries, such as Belize, Seychelles, and Nevis, stand out as destinations for international digital asset-based entities due to their relatively open regulatory environments and well-developed financial services industries.
The use of Belize and Seychelles for digital asset-related companies, and Nevis’s very strong offshore trust legislation and ability to create asset protection, make it ideal for combining with offshore trusts. When used together (offshore trusts), they provide part of a complete strategy for protecting digital assets and managing global crypto portfolios safely.
Frequently Asked Questions
What are crypto custody laws?
Custody refers to the control and responsibility of maintaining, managing, and storing an individual’s digital assets, specifically where one entity is entrusted by another to maintain that individual’s cryptocurrency. The purpose of these regulatory guidelines is to establish definitions of which entities may serve as custodians, whether a license is required, and the specific requirements that must be met for security and compliance. Additionally, digital assets can be structured within a legal framework such as an offshore trust.
Can cryptocurrencies be held in offshore trusts?
Yes. Cryptocurrencies can be placed into offshore trusts just like other assets. In this setup, the trust becomes the legal owner of the digital assets, while the trustees manage them in accordance with the trust terms. This structure is sometimes used for asset protection, succession planning, or long-term wealth management.
Why are island jurisdictions popular for crypto structures?
For many years, jurisdictions such as Belize, Seychelles, and Nevis have provided favorable legal environments for establishing offshore companies and trust arrangements. As a result, their familiarity with international structures makes them a suitable choice for structuring cryptocurrency-related arrangements involving offshore trusts or holding companies.
Is crypto custody safer with a trustee or custodian?
This ultimately depends upon your desired structure. A professional custodian typically provides security in regard to technical matters (i.e., safeguarding private keys). A trust structure addresses issues associated with legal ownership and succession planning. Some investors elect to use both, utilizing custodians for safekeeping and offshore trusts for longer-term asset planning.
Are offshore crypto structures legal?
As long as the offshore digital asset holding structure complies with applicable local laws (including taxation and anti-money laundering), yes, it is legitimate. Each jurisdiction mentioned above has established a legal environment for foreign companies and trusts; however, each individual investor must continue to abide by the local laws of their resident country.
