Why Protect Your Crypto from Liability
Your cryptocurrency is an asset or property most likely owned in your own name. Any assets in your own personal name (or living trust that does not protect assets from liability) are not protected from personal lawsuits.
One of the advantages of crypto is privacy because blockchain transactions can be anonymous. Privacy does help with protecting your assets, but it is not the starting point. Privacy by itself provides no protection, and it makes it more difficult for someone to determine your assets.
If you lose a lawsuit, the courts can force you to disclose all relevant information about the property you own, including crypto. You will not want to commit perjury (lying under oath) because you hope your crypto will not be discovered.
A person convicted of perjury under federal law may faceup to five years in prison and fines. The punishment for perjury under state law varies from state to state, but perjury is a felony and carries a possible prison sentence of at least one year, plus fines and probation.
You already know that many exchanges cooperate with the IRS to disclose financial details, and in countries such as the U.S., you must disclose your holdings on your U.S. tax return.