The Best Way To Protect Your Cryptocurrency Amid Extreme Market Volatility
While some investors believe its best to keep cryptocurrency in a cold storage, away from an online account, the government is working on two different acts to protect digital currency.
A cryptocurrency is a form of currency that has steadily gained in popularity over the last number of years. Many people who invested their money in different cryptocurrencies quickly became very rich. But for the most part, investing your money in cryptocurrency is considered risky as you are not insured like you would be if you invested your money into stocks or bonds from a banking institution.
What are the best ways to protect your finances and your investment?
Several cryptocurrency firms went bankrupt last year due to the volatile economy and high inflation. Investors’ 401(k) plans or retirement accounts can provide protection, but this protection does not cover cryptocurrency investments. If your money is still invested within the cryptocurrency firm when it files for bankruptcy, you may have no coverage and lose your investment. Legally, investors are classed as unsecured creditors.
With most cryptocurrency bankruptcy cases, investors are changing their accounts to non-custodial accounts to try and protect their investments, but now people realize that these protections do not exist. A non-custodial account allows investors complete control over their keys, while a custodial account has a wallet to hold private keys.
It seems there is a massive disconnect between the rights cryptocurrency investors thought they had and what protection they actually have. Many cryptocurrency investors thought they would have the same rights as they would have if they invested their money in a bank or financial institution. Most banks are covered by Federal Deposit Insurance Corporation insurance (FDIC) or Securities Investor Protection Corporation (SIPC), but this protection does not extend to cryptocurrency investment.
On top of that, the framework for legal regulations and definitions is still to be decided, so it will be a while before something to protect investors will even be in place. For cryptocurrency investors to protect themselves, they are only left with private, self-insuring. By arranging their own insurance, they know exactly what they are covered for and liable for.
These policies will cover theft of coins or investments, loss of access when you lose your keys, risk and decentralized finance. Risk coverage for cryptocurrency is similar to any business risk policy, and decentralized finance coverage protects the blockchain if it ever fails.
Before signing up for any insurance, read the fine print carefully. It is essential to know the ins and outs of every insurance policy, so there are no nasty surprises down the road. Some policies are there to protect investors, while others just give the illusion of protection.
Many investment experts believe that it is the best practice to keep your cryptocurrency in cold storage and away from an online account for cryptocurrency investment. But help is on the way for cryptocurrency investors. Several acts are being proposed, including “The Digital Commodities Consumer Protection Act,” which provides the Commodity Futures Trading Commission legal rights over digital currency. “The Responsible Financial Innovation Act” will provide the basic framework to protect cryptocurrency investors.
The federal government is working hard to change the protection levels for all investors so that you get the same level of protection regardless of what you invest your money in.
