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The growth in popularity of cryptocurrencies has, in many ways, outpaced the infrastructure built to support it. In terms of security, cryptocurrency exchanges that serve as a marketplace and storehouse for digital assets have become a favorite target for hackers. Now that the cryptocurrency market has grown to its current capitalization of over $200 billion, demand for cryptocurrency insurance is gaining traction..
Despite the many obstacles facing the cryptocurrency insurance space, the growth of the market over the years is hard to deny. With all this in mind, the insurance business is a people business, and therefore the most effective way to improve engagement between exchanges and insurers is to hold in-person meetings. These interactions will provide insight into a company's management, culture and compliance..
Insurers can take advantage of the increased demand for cryptocurrency insurance and increase their returns with tailored products. Considering the growing trend in the number of insurers that are investing time to understand the risks and opportunities involved in the world of cryptocurrencies, it is time that insurers consider offering coverage in this emerging industry..
The insurance industry has a ways to go before it can offer robust and affordable policies that will reimburse people for lost crypto investments. The main problem with crypto insurance offerings is that they are not completely comprehensive. In order for crypto holders to fully protect all of their crypto assets, they must combine several different plans. They would need a plan to protect against private key loss and another to protect against smart contract failures. They may need a third party to protect themselves if their wallet company ever went bankrupt..
To counter the wave of crypto crime, exchanges like Binance and Coinbase claim to secure the digital funds of investors who fall victim to theft. But that won't help you if you're forced to hand over your passwords and credentials in an extortion scheme..
Coinbase, for example, has crime insurance that protects a portion of the digital assets held in our storage system against loss through theft, including cybersecurity breaches. However, our policy does not cover any loss resulting from unauthorized access to your personal Coinbase accounts due to a breach or loss of your credentials..
To make up for some of the stolen balance, the fledgling sector of cryptocurrency insurance companies may cover some losses related to theft and cybersecurity breaches, but neither investors nor exchanges will recover all of their funds. What the policies generally do not cover are losses from fluctuations in the crypto market or if an investor gets involved in a get-rich-quick scenario that turns out to be a Ponzi scheme, where all or part of the investment is lost. It also does not cover direct loss and damage to hardware and the transfer of cryptocurrency to a third party or protect against the interruption or failure of the underlying blockchain of the asset..
In case of bankruptcy of a cryptocurrency exchange, insurance is less useful. Clients with assets in custody are the last in line to receive any payment. To protect your funds, consider a non-custodial wallet for which you hold the private keys..
Investing in cryptocurrencies is risky. Even the most established cryptocurrency prices are much more volatile than the prices of other assets like stocks. Future cryptocurrency prices could also be affected by regulatory changes, with the possibility of cryptocurrencies becoming worthless. Cryptocurrency funds are also subject to cybersecurity risks, including hacking and theft..
Some insurance companies offer policies that provide limited coverage against theft of cryptocurrency funds. However, available insurance policies provide reimbursement for stolen cryptocurrency funds only in certain situations. Policies generally do not cover losses from fluctuations in the cryptocurrency market. They often do not protect against direct hardware loss and damage, the transfer of cryptocurrency to a third party, or the disruption or failure of the asset's underlying blockchain. To get more comprehensive coverage, crypto investors may need to purchase multiple insurance policies..