by Jake Wengroff
While traditional asset classes can offer a level of protective regulation, either through the U.S. government or private policies, investors in crypto and digital currencies do not enjoy the same protections. Though there’s demand for cryptocurrency insurance, the reason why it does not yet exist on a large scale is because of the underwriting risks. Insurance companies don’t feel they can accurately assess risk factors due to a lack of cohesive rules and regulations in the crypto insurance industry. Some insurers are exploring and testing the market, leaving crypto investors unsure of what their options are for safeguarding their assets.
Is Cryptocurrency Automatically Insured by My Bank or Brokerage Firm?
Unfortunately, it is not. The federal government provides insurance for cash and deposits of conventional securities, like stocks and bonds, but not cryptocurrency assets — at least not yet. The Federal Deposit Insurance Corporation (FDIC) generally insures up to $250,000 per individual, per bank. It covers all checking accounts, savings accounts, money market deposit accounts and certificates of deposit. The FDIC currently doesn’t cover cryptocurrency, though it is considering it.
Investors with brokerage accounts receive insurance to purchase securities thanks to the Securities Investor Protection Corporation (SIPC). Like the FDIC, the SIPC does not offer insurance for cryptocurrency. This can be confusing for many crypto investors since major banks and brokerage firms have begun to offer crypto products and services. However, those specialized products and services do not receive the same protections as do their main banking or brokerage products.
What Is Crypto Insurance?
Similar to traditional insurance, crypto insurance allows for crypto-based businesses to acquire coverage for whatever issues the company may face. Lawsuits, reputational harm or errors are all issues that a company could experience and having the right coverage can help mitigate losses, as with any insurance product in general.
However, it is important to note that the types of private crypto insurance that exist today are not currently targeted at consumers, but are mainly bought by exchanges and crypto wallets. The coverage includes crime and theft, custodial insurance coverage and business insurance, though others are in development.
As such, individual crypto buyers can indirectly benefit from insurance carried by a wallet or exchange. For example, according to its website, Coinbase carries crime insurance that “protects a portion of digital assets held across our storage systems against losses from theft, including cybersecurity breaches.”
Unfortunately, Coinbase’s policy does not cover losses resulting from unauthorized access to a user’s personal Coinbase account due to a breach (on the user’s side) or loss of credentials. “It is your responsibility to use a strong password and maintain control of all login credentials you use to access Coinbase and Coinbase Pro,” cautions Coinbase.
Is Insurance Available for Individual Crypto Investors?
Currently, there is only one carrier that sells a direct-to-consumer offering: Breach Insurance. Breach’s “Crypto Shield” product is the first regulated insurance product for crypto investors. Based in Boston, Breach is licensed and regulated in 10 states, including Massachusetts, California and New York, and customers would need to be a resident of one of the listed states in order to purchase a policy.
Breach Insurance is limited, but it does cover the most popular coins held and traded in the most popular wallets and exchanges. Breach currently covers 20 coins — including Bitcoin, Ethereum and Dogecoin — within exchanges such as Binance, Coinbase, CoinList and Gemini. Breach’s Crypto Shield is a theft insurance policy, meaning it’ll cover hacks and exploitation of exchange wallets, whether your crypto is held in hot or cold wallet storage. Policies run anywhere from $2,000 worth of coverage to $1 million, and you can choose your deductible — either 5%, 10% or 15% of the policy amount.
Keeping Crypto Safe Across Platforms, Wallets and Services
With a constantly shifting, uncertain environment regarding cryptocurrency insurance, and what protections exist in the event of a breach or loss, investors cannot wait for the government to step in and offer safeguards at the federal level for crypto that is lost or stolen.
Instead, the industry needs market-driven solutions that provide the peace of mind that investors need. TransitNet is creating the industry’s first third-party title registry that demonstrates proof of ownership of crypto assets, to add a layer of protection for investors in digital currencies and other crypto assets. Join the forefront of the new crypto infrastructure. Request an exclusive registration for TransitNet’s title registry when it launches today.
Jake Wengroff writes about technology and financial services. A former technology reporter for CBS Radio, he covers such topics as security, mobility, e-commerce and the Internet of Things.
Federal Deposit Insurance Corporation (FDIC) – Deposit Insurance At A Glance
Investopedia – Crypto Insurance
The Daily – What is Crypto Insurance & How Does It Work?
Coinbase – How is Coinbase insured?