Latest / The High Net Worth Podcast with Fexingo: Wealth Management, Tax Strategy, and Affluent Finance / How Ultra Wealthy Families Use Crypto as a Strategic Asset
Transcript
- Lucas: So last quarter, one of the larger single-family offices I track—roughly three billion in assets—did something I hadn't seen before. They moved seven percent of their portfolio into crypto. Not Bitcoin alone, but a structured allocation across Bitcoin, Ethereum, and a few decentralized finance protocols. Luna: Seven percent is real. We're not talking about a 'let's throw a million at it for fun' allocation. That's a bet the size of a mid-market company. Lucas: Exactly, and that's what's changing. Two years ago, many family offices were still in the 'is this a scam or a hedge?' phase. Now, surveys from the Global Family Office Report show that roughly one in four family offices have some crypto exposure. But the real story is how they're doing it—because it's not just buying on Coinbase and hoping. Luna: Right, custody is the first big hurdle. If you're managing fifty million or more in digital assets, you can't just hold the private keys on a laptop. Lucas: No, and that's where regulated trust companies come in. Firms like Anchorage, BitGo, and Fidelity Digital Assets offer qualified custody—meaning they're subject to state trust laws and regular audits. For a family office, that's table stakes. They need to prove to their auditors and their beneficiaries that the assets exist and are safe. Luna: And that custody layer also enables lending. Because once a bank recognizes that crypto is held in a qualified custodian, they'll lend against it. Lucas: Right, that's a huge unlock. One family office I spoke with—based in Miami, about eight hundred million in assets—they use a crypto-collateralized line of credit from a private bank. They put up Bitcoin as collateral, borrow dollars at SOFR plus 200 basis points, and use that liquidity for real estate acquisitions. They never sell the Bitcoin, so they avoid triggering a taxable event. Luna: That's brilliant. Why sell and pay 20 percent capital gains when you can borrow against it at a low rate? Especially in this rate environment—short-term rates are still above 4 percent, but 200 basis points over SOFR is still cheaper than selling. Lucas: And the term structures are getting more sophisticated. A year ago, most crypto-backed loans were demand loans—callable at any time. Now we're seeing three-year term loans with fixed rates, locked in via smart contracts. JPMorgan and Goldman Sachs have both structured bespoke loans for ultra-high-net-worth clients using crypto collateral. Luna: That's a big shift. The big banks were very publicly skeptical of crypto for years. Now they're building products around it. Lucas: They follow the money. When clients with net worths north of 50 million ask for something, the bank figures out how to deliver it—within compliance, of course. And the compliance framework has actually gotten clearer. The SEC's guidance on custody, the OCC's interpretive letters on crypto banking—there's enough regulatory clarity now that a family office can build a repeatable process. Luna: What about the tax side? I assume they're not just ignoring that. Lucas: Far from it. Tax planning for crypto is actually a whole new advisory niche. One strategy that's popular right now: donating appreciated crypto directly to a donor-advised fund. You avoid capital gains tax, you get a charitable deduction at fair market value, and the DAF can sell the crypto tax-free. We covered DAFs in episode nine, but with crypto, the tax savings are even bigger because crypto volatility means gains can be enormous. Luna: And for estates? I imagine stepped-up basis doesn't apply the same way if the asset is digital. Lucas: Actually, it does—if structured correctly. Under current law, inherited assets receive a step-up in basis to fair market value at death. That applies to crypto too, as long as the estate can prove ownership and valuation. That's why some advisors recommend holding crypto in a trust or an LLC, so the asset passes cleanly to heirs without triggering gains. Luna: But valuation at death—that's tricky with a volatile asset. If Bitcoin drops 30 percent the week after the owner dies, the estate could get audited. Lucas: That's exactly why you need a documented valuation methodology. Most family offices use the average of several exchange prices at the date of death, or they use a pricing index from a firm like CoinMetrics or Lukka. The IRS hasn't issued formal guidance, but in practice, consistent methodology and good documentation are acceptable. Luna: Let's talk about the actual investment thesis. Is crypto a hedge or a growth asset for these families? Lucas: It's both, but the framing depends on the family. For the older generation—the wealth creator—it's often a hedge against monetary debasement. They look at the fiscal deficit, the money supply growth, and they see Bitcoin as digital gold. For the next generation—the heirs—it's more about growth and innovation. They want exposure to blockchain-based finance, DeFi yields, things like that. Luna: So the allocation splits. The parents buy Bitcoin, the kids buy Ethereum and maybe some Solana. Lucas: Exactly, I've seen that exact split. The Miami family I mentioned—the patriarch holds Bitcoin and a little gold. His son, who's 35, runs a separate pool within the family office that invests in crypto venture funds and liquid tokens. The son's pool has returned about 40 percent annualized over three years, but it's also had drawdowns of 60 percent. Luna: That's the other side. Volatility is brutal. A 60 percent drawdown would wipe out a normal allocation. How do they stomach that? Lucas: They size it appropriately. The seven percent allocation I mentioned—that's the upper end. Most family offices are at three to five percent. And they treat it like a venture capital allocation: illiquid for the long term, high risk, high return. They don't rebalance monthly. They set a policy and stick to it. Luna: And they use fund structures too, right? Not just direct holdings. Lucas: Yes, a lot of family offices prefer funds for diversification. There are now dozens of crypto hedge funds and venture funds tailored for accredited investors. Some are long-only, some do market-neutral strategies like basis trading. The fees are high—two and twenty is standard—but the due diligence is getting better. Family offices hire dedicated crypto analysts or use outsourced CIOs who specialize in digital assets. Luna: It feels like we've moved from 'should we invest?' to 'how do we do this properly?' That's a big maturation. Lucas: It is. And the infrastructure keeps improving. We now have regulated futures markets for Bitcoin and Ethereum on the CME, which allows for sophisticated hedging. You can short crypto futures to lock in gains, or use options to generate yield. Some family offices are even running covered call strategies on their Bitcoin holdings. Luna: Covered calls on crypto—that's almost mainstream. Five years ago, that sentence would have sounded like science fiction. Lucas: And the regulatory environment is likely to get even clearer. The Lummis-Gillibrand bill, if it passes, would create a comprehensive framework for digital assets. That would remove a lot of the uncertainty that still worries some families. Luna: I think the bottom line is: crypto is no longer a fringe asset for the ultra-wealthy. It's a serious allocation with serious infrastructure. Lucas: Right, and we should note that not every family office is on board. I know several that have zero crypto exposure and plan to keep it that way. They see it as too speculative, too unregulated. But for those that do allocate, the approach is increasingly disciplined. Luna: Which is exactly what our show is about—the tactical how behind high-net-worth finance. Lucas: Speaking of which, I want to mention something briefly. We deliberately keep these episodes ad-free. No sponsors, no commercials. If that kind of independent conversation is valuable to you, consider supporting it at buy me a coffee dot com slash fexingo. Luna: Yeah, it lets us keep the focus on the actual strategies rather than pitching products. Appreciate everyone who helps make that possible. Lucas: Alright, back to crypto. One last thing I want to highlight: the role of decentralized finance. Some family offices are experimenting with DeFi lending protocols like Aave and Compound to earn yield on their stablecoin holdings. They'll deposit USDC and earn 4 to 6 percent—fully on-chain. But they do it through a qualified custodian that interfaces with the protocols, so the family never manages a wallet directly. Luna: So the custodian handles the smart contract risk. That's a smart middle ground. Lucas: Exactly. And it shows the direction we're heading: traditional wealth management infrastructure layered on top of decentralized rails. The ultra-wealthy aren't becoming crypto anarchists. They're integrating the technology into the systems they already trust. Luna: I think that's the real story of 2026 so far. Not 'crypto replaces banks,' but 'crypto becomes another tool in the wealth manager's kit.' Lucas: Well said. Next time, we'll look at another emerging asset class that's quietly entering family office portfolios—something you might not expect.