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How to Protect Your Cryptocurrency from Legal Liability

Digital assets are prone to legal liability risk, meaning they can be targeted for legal action, leading to crypto asset loss and you must be mindful of protecting your crypto assets from risks such as legal liability.

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While crypto investing can be quite rewarding, it isn’t without risk. Just like real estate, cash, and other traditional assets, digital assets are also prone to legal liability risk, meaning they can be targeted for legal action, leading to crypto asset loss.

As a successful and smart crypto investor, you must be mindful about protecting your crypto assets from risks such as legal liability. Discussed below is how to protect your cryptocurrency from legal liability.

Leverage an asset protection trust

The IRS considers crypto a personal property, meaning they can seize it depending on multiple factors like how much you owe them. Putting your cryptos in an asset protection trust can shield them from legal claims and creditors by separating you from your assets’ liability. Asset protection functions by giving management authority over your crypto holdings to third-party trustees.

This leaves the crypto out of your hands for legal reasons. The legal separation between you (the settlor) and your digital currencies offers asset protection for crypto, safeguarding your investment from legal liability and third-party seizure.

Understand crypto regulations

Crypto legal protection is complex. This complexity originates from the fact digital assets laws differ significantly across various jurisdictions. Understanding and adhering to the regulations within your particular jurisdiction is imperative to ensure your cryptos are shielded from legal liability. Besides preventing possible legal consequences, this informs you of the protections or rights you might be entitled to under your state’s local laws.

While some countries have adopted cryptos, others have banned them outrightly or imposed stringent laws. Staying up-to-date with your region’s latest crypto-related news and legal precedents can help protect your digital currencies.

Use a crypto custodian service

Acquiring a custodian’s services is another option you can leverage to safeguard your cryptocurrencies. A custodian is a third party responsible for holding and managing digital assets on your behalf while ensuring compliance with relevant laws. Leaving your digital assets to a custodian to manage assures you that your cryptos will stay secure and safe from possible financial or legal difficulties and cyberattacks. Note that shielding your crypto from legal liability using a custodian service comes at a cost. The fees different crypto custodians charge to find an affordable crypto protection service.

Stay up-to-date with global regulation changes

Crypto’s borderless and decentralized nature makes it vital for every investor to keep up with regulatory framework changes in their home countries and globally. Staying abreast regarding these changes enables you to take proactive actions to adapt your legal protections and investment techniques, keeping them effective under changing regulatory conditions. Leveraging legal advice conventions, crypto news platforms, and other resources can help you remain up-to-date with the latest crypto regulation developments.

Consider taxes

Unlike traditional assets, cryptos are usually regulated by different tax regulations, which can differ based on your location. Since tax authorities usually consider digital assets as property, any losses or gains from their exchange or sale are subject to tax (capital gains).

Understanding crypto taxation before filing your taxes can be helpful. If you have trouble navigating the complexities surrounding cryptocurrency taxation, consider seeking a skilled tax advisor’s guidance. This can help lower your tax liability while mitigating the risk of legal complications and penalties.


While crypto investing can be quite lucrative, it comes with many risks. Use these tips to protect your cryptocurrency from legal liability and secure your investment.