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Ways UHNWi can protect their crypto assets

Ways the UHNW can protect their crypto assets, including an image of a padlock on a circuit board.

Ultra-high net worth individuals (UHNWI) with substantial holdings in cryptocurrencies need to use a broad range of strategies to safeguard and manage their digital assets effectively as unlike average investors that may just have small crypto holdings, wealthy investors crypto wallets have the potential to be worth hundreds of millions therefore it’s well worth going to great effort and cost to protect. Here are just some of the ways in which huge crypto assets are protected for some of the richest people in the world.

Financial Advisors and Asset Management Firms

UHNWI often resort to the expertise of financial advisors or asset management firms to handle their crypto assets. These specialists provide invaluable advice on safeguarding assets, growing the portfolio, and navigating the complex regulatory landscape. They can also offer services like secure custody solutions, ensuring a high level of security for digital assets.​

Cold Storage Solutions

Using cold storage solutions is absolutely crucial for protecting digital assets from online hacking attempts.

Hardware Wallets

Hardware wallets are also known as cold storage. When in use, your wallet is isolated from the internet reducing the risk unauthorised access via online hacking. The products Ledger Nano X and Trezor Model T are devices designed to securely store cryptocurrency private keys offline, providing a strong level of security, making it much safer than being stored in a cryptocurrency exchange. 

Paper Wallets

A paper wallet is a physical document containing a public address for receiving cryptocurrency and a private key for spending or transferring cryptocurrency stored in that address. Although this cannot be accessed via the internet and is therefore immune to being hacked, they necessitate secure physical storage and can be misplaced or stolen.

Safety Deposit Boxes

Storing hardware or paper wallets in secure safety deposit boxes adds extra protection against theft or unauthorized access. Preferably not held at a traditional central bank.

Multisignature Wallets

Multisignature wallets offer an increased level of security by demanding multiple signatures or private keys to authorise a cryptocurrency transaction. This ensures that assets cannot be moved without approval from multiple parties, making it harder for unauthorised individuals to access funds.

Smart Contract-Based Locks

The use of smart contracts with time-locked or operations-locked clauses significantly reduces unauthorised access to funds. Smart contracts can be customized to allow specific transactions only when a predetermined time has elapsed or certain conditions have been met.

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Description: Ways the UHNW can protect their crypto assets using a blue circuit board with a bitcoin on it.

Legal Structures

Legal frameworks provide a structured approach to managing and transferring digital wealth securely and are frequently recommended by some of the best family offices.

Trusts and Foundations

Establishing a legal entity to hold crypto assets not only bolsters security but also unveils potential tax advantages. It also facilitates a structured and legally sound method of transferring wealth to future generations.

Limited Liability Companies (LLCs)

Using organisations to hold and manage cryptocurrency assets provides a veil of personal liability protection against potential personal legal issues. It is also a way for a company to diversify its asset holdings.

Cybersecurity Measures

The implementation of robust cybersecurity protocols is crucial to protecting digital assets. To ensure the security of digital asset holdings, it is crucial to implement firewalls, use anti-malware tools, and enlist the expertise of security professionals for effective management and monitoring. Regular security audits can unearth potential vulnerabilities, ensuring that wallets worth tens up to hundreds of millions are protected.

Privacy Preservation

Maintaining a low profile is also crucial for an UHNWI. By keeping their cryptocurrency holdings private, these individuals can diminish the risk of targeted thefts and other security threats. 

Insurance

There are insurance policies available that cover theft of crypto but only in specific situations. Numerous insurance organisations now offer policies tailored for digital assets, offering a safety net in adverse scenarios.

Global Investment and Diversification

To mitigate the inherent risks associated with the price volatility of cryptocurrencies, UHNWI typically diversify their investments across various asset classes and geographic locations. By distributing their wealth, they can better preserve their financial standing even amidst adverse market conditions​.

Every UHNWI’s situation is different and as such the strategies for protecting their wealth needs to be a unique blend of the above and more like real estate and company ownership, even looking into alternative investments like whisky investment.

Why Crypto is a great way to diversify your investment portfolio

Digital currencies like Bitcoin and Ethereum are regarded as alternative investments that appeal to high net worth families as they do not correlate with traditional financial markets and can serve as a hedge against inflation, rendering them a fitting addition to a well-diversified portfolio alongside traditional assets.

Cryptocurrencies also provide an unparalleled level of anonymity and security for transactions, which is a significant benefit for numerous UHNWIs who prefer to keep their financial information confidential.

Cryptocurrencies such as Bitcoin, Ethereum are decentralised and global, which can make them an attractive option for UHNWIs with a global outlook desiring to diversify their investments across multiple markets.