On 2nd December 2025, the UK formally recognized digital assets as personal property through the Property (Digital Assets etc) Act 2025. This landmark legislation creates a “third category” of property - alongside physical assets and contractual rights, specifically designed to accommodate crypto-tokens, NFTs and other blockchain-based assets. Industry advocates celebrated the clarity. Bitcoin Policy UK called it “possibly the biggest change in English property law since the invention of beneficial title in the Middle Ages.” But here’s the question few are asking: Does legal recognition of digital assets as property solve the fundamental problem that has plagued digital innovators from the beginning, converting innovation into working capital?
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The cash flow chasm
Traditional businesses understand the relationship between assets and liquidity. Property can be mortgaged. Inventory can be financed. These mechanisms exist because centuries of commercial law have established clear frameworks for lenders to assess risk, perfect security interests and recover value if things go wrong. Digital asset companies face a more complex reality. They may hold tokens worth millions on paper, but converting that value into cash flow for payroll, infrastructure costs and growth capital remains stubbornly difficult. Consider the fundamental tension: A digital asset company holds £5 million in tokens. Under the new Act, these are now legally recognized as property. But can those tokens secure a business loan from a traditional bank? Can they be used as collateral for working capital? Can they be pledged to investors without triggering complex securities regulations? The Act clarifies what digital assets are. It does not yet answer what digital assets can do in the machinery of commercial finance.
The tokenization promise vs. the liquidity reality
The excitement around tokenization, converting real-world assets like property or fund shares into blockchain-based tokens, is based on a compelling thesis: If assets can be fractionally owned, instantly transferred and transparently tracked on distributed ledgers, they should become more liquid. The UK Financial Conduct Authority has embraced this vision. Major institutions are running pilots. Standard Chartered bank estimates the tokenized asset market could reach $30 trillion by 2034. But pilot projects and production systems exist in different universes. Production systems require:
· banks willing to extend credit against digital collateral
· accounting standards that value tokens consistently
· tax treatment that doesn’t penalize liquidity
· insurance products that protect digital custody
· secondary markets with sufficient depth
· interoperability between blockchain networks
· legal precedent for enforcement when things go wrong
None of these exists at scale yet. The Act provides legal foundation. The financial infrastructure must still be built.
Questions without easy answers
For digital asset companies navigating this landscape, the new legal clarity raises as many questions as it answers, including:
· on funding and collateral
Can founders use tokens they’ve created as collateral for business loans without triggering securities treatment? If those tokens later increase in value, does the appreciation create taxable events that consume the working capital the loan was meant to provide? What happens if token values collapse - do lenders have the same recovery rights they’d have against traditional collateral?
· on investor dynamics
If tokens are now legal property, how do venture capital term sheets address token holdings versus equity ownership? Can investors demand control over how founders deploy token treasuries? Do “bad leaver” provisions - which can force founders to sell equity at below-market rates - now extend to token holdings?
· on crisis decision-making
When smart contract vulnerabilities emerge at 3 AM, requiring emergency protocol pauses or treasury deployments, are those decisions now subject to different legal standards given tokens are formal property? If a founder makes a rapid decision that saves the protocol but triggers token price volatility, can that be recharacterized later as “mismanagement of property” if investor relationships sour?
· on platform dependencies
Digital asset companies often depend on Layer 1 blockchains, custody providers, or exchanges. If those platforms change policies, fail, or implement upgrades that affect functionality, do founders have any recourse now that tokens are recognized property? Or does property status create new liabilities without corresponding protections?
· on regulatory arbitrage
The Act applies to England, Wales and Northern Ireland. But digital assets are global. If a token is property in the UK but treated differently elsewhere, which jurisdiction governs disputes?
The institutional pressure layer
This is where legal clarity intersects with operational vulnerability. The new Act does not change the fundamental power dynamics between well-capitalized institutions and under-resourced innovators. A founder might now hold legally recognized property worth millions. But if that founder is simultaneously dependent on VC funding, subject to shareholders agreements with subjective breach provisions, operating under regulatory uncertainty and managing compound pressures from token price volatility - then legal property status may create as much exposure as protection. Property can be seized, attached, frozen or subjected to injunctions. Recognition brings obligations as well as rights. Traditional businesses learned this centuries ago: owning property and accessing liquidity from that property are different challenges entirely.
The path that might emerge
The optimistic case is that legal recognition catalyzes infrastructure development. Banks develop digital asset lending products. Exchanges create liquidity pools. Accounting standards evolve. Insurance markets mature. This has happened before. When derivatives were “recognized” through legal frameworks in the 1990s, entire industries emerged to finance, custody, clear and settle these instruments. The recognition itself didn’t create liquidity - but it enabled the commercial ecosystem that did. The pessimistic case is that property recognition creates new risks without corresponding benefits. Digital asset companies now face all the obligations of property ownership - potential attachment, enforcement, insolvency treatment - without access to the financing mechanisms property traditionally enables. Most likely, we’ll see segmentation. Large institutions with compliance infrastructure will access financing secured by tokenized assets. Smaller innovators, building the future of decentralized finance and novel protocols, will remain trapped between regulatory recognition and capital access.
What founders need now
Whether legal recognition accelerates or complicates digital asset financing remains an open question. But founders building in this space can’t wait for the answer. They’re making decisions today that will determine survival tomorrow. This means understanding not just what the law allows, but what institutional dynamics will exploit. It means recognizing that “property” status brings sophisticated legal claims, not just protections. It means preparing for scenarios where tokens you created become liabilities, where emergency decisions get reinterpreted through property law frameworks, where investors use legal recognition to tighten rather than loosen control. The Act creates opportunity. It also creates exposure. The companies that thrive won’t be those that celebrate the legal clarity - they’ll be the ones who understand how that clarity changes the game board. Recognition is not liquidity. Property is not protection. And legal status doesn’t solve the problem that has challenged every innovation cycle: converting vision into working capital before the runway ends.
The questions posed here don’t have simple answers. But founders who fail to ask them may discover, too late, that property status creates as many vulnerabilities as it resolves.
Jonathan Bloom is the author of BLINDSPOTS: How to See Risk Before It Strikes, Protect Your Venture and Unlock Growth. After 25 years advising global institutions, he built an innovative venture that was dismantled through contractual dynamics he never anticipated. BLINDSPOTS provides the protection frameworks founders need to survive institutional pressure.
This article first appeared in Digital Bytes (24th of December , 2025), a weekly newsletter by Jonny Fry of Team Blockchain.