Bitcoin investors, rest in peace: Digital bank adds crypto estate planning

April 23, 2021, 3:08 PM UTC

Subscribe to The Ledger for expert weekly analysis on fintech’s big stories, delivered free to your inbox.

Sometime last decade, Matthew Mellon placed a big, prescient bet on cryptocurrency.

A scion of the patrician family behind BNY Mellon, one the oldest banks in the U.S., Mellon made a fortune on his risky wager. He transformed an early $2 million investment in XRP—a virtual asset that is now at the center of a Securities and Exchange Commission lawsuit—into a billion-dollar windfall by January 2018, by Forbes’s estimation. Then he died—reportedly leaving his family without a way to access much of that wealth.

Cryptocurrency lore is rife with stories of tortured souls who, either through poor planning or misfortune, lost access to their digital riches. But as Mellon’s extraordinary example shows, sometimes it’s not the keys—the password-like secrets that secure people’s crypto wealth—that are lost, but people’s lives. With Bitcoin’s price still up nearly 90% since the start of the year (despite a recent falloff), investors are increasingly concerned that giving up the ghost could mean giving up the gold—digital, that is. Many an heir’s worst nightmare.

What if I pass away?

Bitcoin investors can now rest a bit more peacefully.

Anchorage, one of the newest federally chartered banks in the U.S., is partnering with Two Ocean Trust, a Wyoming-based wealth manager, to offer crypto estate planning. The centuries-old legal structure of a trust offers more protections and security than a traditional will or even less formal plans for one’s postmortem financial affairs.

“One of the things we started noticing with the ramp up in price last year, there were many, many family offices and individuals that just became fabulously wealthy,” says Diogo Mónica, Anchorage’s president and cofounder. But all that newfound wealth generated anxiety as people realized they “were no longer comfortable having the responsibility of managing their own keys.”

“People really don’t think of this component until your crypto is now $10 million, or $100 million—and now you start thinking about it very deeply,” Mónica says. “The next question is, not only if it’s stolen, but what if I pass away?”

When cases go cold

Anchorage prides itself on its biometrics-based technology. The tech lets people store crypto keys more accessibly, outside usual “cold storage,” which often entails stashing these sensitive codes away under lock and key in bank vaults.

Anchorage says its goal is to eliminate “key person risk.” In other words, the firm aims to keep people’s cryptocurrency holdings securely protected—and accessible—even should some ill fate befall them. The company, which is backed by Visa and recently inked a transaction-settling deal with the payments giant, exclusively caters to institutional customers, meaning companies, investment funds, and family offices, versus retail investors.

While Anchorage’s products aren’t available to everyone, they are an option for high–net-worth individuals. The challenge of persuading them to XYZ is getting them “comfortable with relinquishing control,” says Joel Revill, Two Ocean Trust’s chief executive. But, he adds, “the ‘not my keys, not my coin’ philosophy”—a motto of Bitcoiners, like “be your own bank”—“can bend a bit if they know there is a safe, reliable, and easily accessible method to protect their wealth.”

“Our industry is filled with too many stories of crypto fortunes being trapped forever on a blockchain,” Revill says, referring to the distributed accounting ledger technology that underpins cryptocurrencies such as Bitcoin.

Trusted coins

Anchorage and Two Ocean are calling their joint, crypto estate planning service, appropriately, “COIN trust.” (The name is short for “crypto optimized irrevocable non-grantor trust.”) The service already has some customers, Mónica says.

Cryptocurrency companies are sometimes reluctant to discuss in depth their protocols for passing wealth on to next-of-kin for fear of fraudsters finding a way to abuse the option, as Fortune noted years ago. But companies, like recently stock market–listed Coinbase, are known to work to recover funds for family members of deceased account holders. (Details can be found in Coinbase’s “user agreement.”)

Most people will resort to leaving wills or other written instructions behind to make sure their wealth doesn’t vanish in their absence. Proper planners will make sure to record passwords for accessing cryptocurrency-laden online accounts or computer hard drives. But for some big-time investors—and their designated inheritors—the ability to secure all that wealth in a trust offers some much-needed solace.

“People just started having too much money, and they were becoming very uncomfortable having it stored under their mattress,” Mónica says. It’s a good problem to have, of course; whether they opt for his COIN trust, or some other more bespoke crypto trust option, they’ll be able to sleep more peacefully at night.

More must-read finance coverage from Fortune: