Virtual Asset Wealth: Is There a Way Back to the ‘New World’?

The UAE has evidently understood the power of virtual asset wealth and has been almost perfectly primed to provide a structured regulated environment for decentralized finance to find its feet on its terms. As such, it has attracted some of the brightest and best minds to its shores to contribute to the ecosystem as market participants. Uniquely, as a jurisdiction that is four hours’ flight away from a third of the world’s population, it has managed to attract such minds from as broad a spread of cultural backgrounds as any other administration in the world.

This success has been, in no small part, due to the very different approach taken by the USA towards the virtual asset ecosystem. However, as the UAE continues to attract the talent that the USA loses, it would be a mistake to think of the future of virtual asset wealth in the same zero-sum terms.

Where the next wave of wealth will come from

Underlying this first phase of virtual asset wealth creation sits the technology itself — the blockchain. This is primarily an application of cryptographic technology that lends itself most effectively to utilities, and it is this focus on utility that will transcend the first waves of value that have so far been created. The Gulf is already attracting those from traditional professions who have seen the effective dissolution of the ‘middleman’ thanks to this technology. Whether in supply chains, professional services, or trade finance, many are looking to take advantage of a regulatory and business environment that has everything to gain from applying industry knowledge in new, less concentrated, and innovative ways.

Much of this new web 2.5/web3 world is still in early stage development, with big ideas being explored, real utility being established, and value being pursued through building better solutions and systems. But it is here that those who see the true vision of the infrastructure will be building legacy wealth creation. And it is those same parties that inevitably have an interest in maintaining that wealth in jurisdictions that have an established, well-developed capacity to augment intergenerational wealth. In other words, the risk takers that develop wealth often look for non-correlated ways to maintain that wealth.

Legacy: Thinking past the next fork

The growing group of virtual asset wealth creators face a complex global reality that they must navigate while building businesses at the very tip of the innovation spear.

From a planning perspective, crypto does bring some unique questions to the table, namely around the key issue of custody and how that must often be separated from the party that has created wealth in order for effective legacy planning, asset protection, and privacy and tax optimization to work. Self-custody is inherent in the crypto ecosystem and is a great option for smaller investors, but ‘being your own bank’ is not a real option for those with significant wealth.

In addition, there is the abiding issue of ‘where’.

Hub(s) for wealth

This is a much-discussed issue facing those with crypto wealth. The leadership of an increasing number of jurisdictions understand the legitimate nature of that wealth and have produced mechanisms for it to be stored securely, with soft infrastructure that renders it treated in the same manner as almost any other tangible or intangible asset class. But there are still a number of jurisdictions that are yet to bite.

Traditionally, no matter the form of wealth, there is a desire — particularly from those in the global south — for wealth to be located in a stable jurisdiction with an enduring rule of law, and strong privacy and property rights for individuals. Places such as Guernsey, Jersey, Gibraltar, Lichtenstein, and Switzerland have traditionally been attractive hubs to contain and manage that wealth.

However, whilst the USA has not been as friendly towards virtual asset adoption, prima facie, it is a non-sequitur to suggest that it is therefore a total non-option for those who may have developed wealth through virtual assets and are looking for ways to invest that wealth in a broad spectrum of USA based assets.

Land of opportunity and risk

In the global puzzle facing families of wealth, the USA nexus question is, perhaps, the most important one and, unfortunately, all too often the least understood. It is still the case and will be so for a while, that the ‘OG’ land of opportunity continues to provide the best quality of education, investment, real estate, and security for those looking to provide a high quality of life for their families.

With prior planning, a significant number of pre-immigration and pre-investment opportunities and important risk management considerations can be addressed as part of, and in parallel to, business decisions. However, without it, several pitfalls can, and historically do, emerge — even more so for virtual asset wealth, where the priority may be privacy.

For example, if a non-US business is acquired by a USA company, or M&A activity is engaged with in any form, there are several ways in which a well-planned and carefully executed transaction can work in harmony with plans involving the USA. However, as is seen all too often, a lack of planning and structuring prior to the event can swiftly close that door.

Furthermore, even if there is no desire to physically relocate to the USA (whether for retirement, or if another family member wishes to study there), there are a number of structures in certain USA states that can be deployed in order for wealth to be managed in as effective and efficient a manner as possible.

Planning for success

Such opportunities come down to nuanced planning, which is best executed by those who have a firm grasp of the arbitrage that exists across jurisdictions, and which allows for virtual asset wealth to be managed, deployed, and transferred in a safe, legitimate, and effective manner.