Yeah after some thought about it I figured that the pve-cluster would be very confused with another fs bind mounted onto /etc/pve. I ended up using dm-crypt for my backup destination since encrypting /var/lib/pve-cluster would mean I will lose the ability to have encrypted and unencrypted VMs on the same system. Btw it would be very useful if we could specify the path to the encryption key in /etc/pve/storage.cfg - that way one can place it outside /etc/pve and still avoid causing the PVE processes going mad with some hacky solution like mine. It would also provide more security for environments where that is important (STIG, SOX) - right now if you get a hold of a PVE host you can steal the backups keys and decrypt the backups, rendering the encryption useless. If we could place the backup keys onto an encrypted volume we can control how and when those keys are avaliable for access - one can even schedule them to be mounted/unmounted only during backups and restores or even store them into a vault and control the access using timed tokens - the vault is open only during the backup window. Sort of end to end encryption solution. Of course that would be very inconvenient as a default, but the option to do it would be great. Of course the best option would be to only store the public key on the PVE host and keep the priviate key off system so you can use it only during restores. That would avoid those gymnastics all together and provide much better security model, but I don't know how easy would be to implement that - my guess is that it would be hard.