diff --git a/lib/wallet/masterkey.js b/lib/wallet/masterkey.js
index d1786e4a1..fde09bd71 100644
--- a/lib/wallet/masterkey.js
+++ b/lib/wallet/masterkey.js
@@ -656,7 +656,7 @@ class MasterKey {
    */
 
   toJSON(network, unsafe) {
-    if (this.encrypted) {
+    if (!this.key) {
       return {
         encrypted: true,
         until: this.until,
diff --git a/test/wallet-http-test.js b/test/wallet-http-test.js
index 70fbe8a5e..1b6c3c0e5 100644
--- a/test/wallet-http-test.js
+++ b/test/wallet-http-test.js
@@ -85,6 +85,31 @@ for (const witnessOpt of witnessOptions) {
       addr = Address.fromString(str, node.network);
     });
 
+    it('should enable seed phrase recovery', async () => {
+      const options = {
+        passphrase: 'PASSPHRASE',
+        mnemonic: 'zoo zoo zoo zoo zoo zoo zoo zoo zoo zoo zoo wrong'
+      };
+      const walletName = `test_seed-${witnessOpt}`;
+
+      const testwallet = await wclient.createWallet(walletName, options);
+      assert.strictEqual(testwallet.master.encrypted, false);
+
+      const master1 = await wclient.getMaster(walletName);
+      assert.strictEqual(master1.encrypted, false);
+      assert.strictEqual(master1.mnemonic.phrase, options.mnemonic);
+
+      await wclient.lock(walletName);
+      const master2 = await wclient.getMaster(walletName);
+      assert.strictEqual(master2.encrypted, true);
+      assert.strictEqual(master2.mnemonic, undefined);
+
+      await wclient.unlock(walletName, 'PASSPHRASE', 100);
+      const master3 = await wclient.getMaster(walletName);
+      assert.strictEqual(master3.encrypted, false);
+      assert.strictEqual(master3.mnemonic.phrase, options.mnemonic);
+    });
+
     it('should fill with funds', async () => {
       const mtx = new MTX();
       mtx.addOutpoint(new Outpoint(consensus.ZERO_HASH, 0));