Crypto and Compliance: Why That One-Off Bet Still Needs Oversight

October 2025

It’s not just crypto-native hedge funds navigating this terrain. Private fund managers, prop shops, and even family offices are increasingly making opportunistic investments in digital assets, sometimes just once or twice, and moving forward without carefully considering the regulatory landscape and potential risks. For example, a private equity fund dips into tokenized real estate. A multi-strategy platform buys equity in a blockchain infrastructure startup. A proprietary trading firm, funded entirely with founder capital, starts taking liquid token positions on the side. These moves often seem simple, informal, or outside the scope of traditional compliance infrastructure. But when it comes to crypto, regulatory expectations are quickly evolving.

Why It Matters Even for One-Offs and Prop Capital

For funds managing outside money, even a single crypto-related position can raise complex questions: How should this be disclosed in offering documents? Does your valuation policy cover digital assets? Are you inadvertently triggering custody requirements? Are your compliance procedures equipped to address issues like private key management, market volatility, or AML/KYC obligations?

Even proprietary trading firms investing only internal capital aren’t immune. If you use third-party custodians, interact with digital asset platforms, or plan to take on outside investors down the road, poor documentation or lack of controls today can create serious friction later. Founders often think, “It’s our own money, so we don’t need policies yet” but those same gaps can make it harder to scale, audit, or even exit gracefully if capital sources change.

How Digital Assets Affect Every Part of Your Business and How Moeller Law Helps

Even a small crypto exposure can have ripple effects across nearly every area of fund and trading operations. Here’s how those issues show up, and how Moeller Law PLLC works with clients to manage them.

1. Form ADV Disclosures

Digital assets may trigger new reporting obligations or modify existing ones. A fund that previously disclosed exposure only to traditional securities might now need to report holdings under different asset categories, specify custody arrangements, or add risk disclosures around valuation and liquidity.

How Moeller Law helps: We review your ADV filings, update Part 2A disclosures, and align your compliance manual and risk summaries so that all digital asset references are consistent, accurate, and regulator-ready.

2. Investor Communications and Offering Documents

If you’ve taken a crypto position and your private placement memo or investor deck doesn’t mention it, that’s a disclosure risk. Omitting material exposures can be viewed as misleading. LPs may later argue they weren’t informed of the potential volatility or custody risks.

How Moeller Law helps: We audit and update offering documents, LP communications, and side letters to ensure proper disclosure of digital asset exposure, risk factors, and related conflicts of interest. When applicable, we coordinate with compliance and marketing teams to make sure all representations match.

3. Audit and Compliance Policies

Crypto creates unique operational and control challenges: how wallets are managed, how transactions are verified, how counterparties are vetted. Even small positions can trigger “custody” or “valuation” questions during SEC exams.

How Moeller Law helps: We review and revise your written supervisory procedures, custody controls, and valuation policies to ensure they accommodate digital assets without overcomplicating your framework. For prop shops, we help establish scalable policies that meet regulatory standards without unnecessary overhead.

4. Tax Reporting and Basis Tracking

Crypto transactions can create complex taxable events, especially when staking, airdrops, or token conversions occur. Even holding crypto through a fund structure can complicate cost basis and timing recognition.

How Moeller Law helps: We coordinate with your tax advisers to ensure fund agreements and investor disclosures accurately address crypto treatment. We also help document transaction history and reporting structures that satisfy both IRS and investor-level transparency requirements.

5. Operational Due Diligence and LP Inquiries

Institutional investors are increasingly asking about a fund’s approach to digital asset oversight, even if exposure is minimal. Lack of clear documentation or inconsistent answers between compliance and operations can become a red flag in ODD reviews.

How Moeller Law helps: We prepare concise internal memos and talking points for LP due diligence responses, helping ensure your team answers consistently and confidently. We also review ODD questionnaires and marketing materials for consistency with fund docs and internal controls.

6. Counterparty and Custodial Risk

Using exchanges, wallets, or custodians introduces third-party risk that must be documented and supervised. The collapse of a custodian—or even a temporary lockout—can have cascading operational and regulatory consequences.

How Moeller Law helps: We assist in negotiating and reviewing digital asset custody agreements, implementing verification procedures, and documenting counterparty due diligence in a manner consistent with your overall compliance framework.

It's Not Just a Legal Exercise

Digital asset investments bring legal questions, but also implicate compliance, finance, tax, and operational risk. For instance, a fund may misclassify crypto holdings on its financial statements, or a token distribution may inadvertently trigger an unreported taxable event. Even minor wallet activity can create mismatched reporting between fund administrators and auditors if it’s not addressed early.

Similarly, receipt of tokens in connection with an investment can raise valuation and disclosure concerns even if the tokens are illiquid. And funds often discover late that their administrators or custodians lack processes for reconciling or verifying digital assets, creating bottlenecks during audit season.

How Moeller Law Can Help

At Moeller Law, we work with private funds, proprietary trading firms, and family offices to help ensure that even modest exposure to digital assets doesn’t create oversized risk. That includes reviewing and updating offering documents, advising on marketing and investor communications, working with fund administrators and auditors on valuation and control frameworks, and coordinating with tax and compliance teams to ensure consistent policies across the firm. We also help proprietary trading firms (that operate solely with internal capital) establish flexible documentation and compliance strategies that don’t overreach, but still position them for scale or scrutiny if circumstances change.

If you’ve made, or are considering, a digital asset investment, whether it’s core to your strategy or not, it’s worth making sure your infrastructure can handle it. A little work now avoids major headaches later.