Do You Need Crypto Insurance For Your Cryptocurrency Investments?

With the cryptocurrency market growing by leaps and bounds, many are wondering about crypto insurance and if it can protect your investment

By Doug Norrie | Published 3 years ago

The financial world is quickly changing before our eyes. It used to be that the regular person could safely put their money in the bank, contribute to the 401K (or pension), and possibly buy a stock or two to dabble. That was the long and short of it. But now there is a whole new financial world at our fingertips. Not only is buying and selling stocks considerably easier than ever before through a multitude of trading platforms geared towards a user experience, but the world of crypto and cryptocurrency has opened up a completely new floodgate into this financial market. It begs the question of safety around this kind of investment and whether one needs to look into crypto insurance when taking the plunge.

While Bitcoin and other cryptocurrencies have been around for years, in the grand scheme of things it is all relatively new. With an emerging, and deregulated market like cryptocurrency, there can be considerable upside, but also plenty of downside as well. In this way, crypto insurance might just help allay some fears about making crypto part of your portfolio while also protecting against the worst-case scenarios. But is it worth it? Does having crypto insurance make sense? Let’s take a look at the ins and outs of this new product.

WHAT IS CRYPTOCURRENCY?

Before getting to crypto insurance, we’ll backtrack just a tad here for a lightning round through the world of cryptocurrency. Cryptocurrency refers to any digital or virtual currency that has a basis in cryptography. It is exchanged through computer networks with a number of high-security protocols. Because the backbone of cryptocurrencies is in the form of code that is incredibly difficult to crack, moving, saving, and transacting in cryptocurrency is *safe* along the different networks. 

While it wasn’t the first, Bitcoin is thought of as the gold standard in this marketplace, having been created by the anonymous Satoshi who released the first coins back in 2008. This person’s identity has never been formally revealed and there is some possibility “he” is actually a group of people who worked on the initial project. That is speculation though. While there’s a good chance this guy (or group) thought Bitcoin had potentially world-altering upside, I doubt the thought of crypto insurance popped up around the times of the initial implementation.

Regardless, many other cryptocurrencies have come along over the years including Ethereum, Binance Coin, XRP, Cardano, and many more. Each cryptocurrency has things that make it different than the others whether by how they are encoded, how they are mined, and other pieces that make each coin and project different. To date, the cryptocurrency market sits somewhere in the $1.3 trillion range though in recent months has dipped well below its previous highs.

IS CRYPTOCURRENCY SAFE?

This question has become one of the central talking points around cryptocurrency over the years and is one of the key pieces when beginning to consider crypto insurance.  The word “safe” here can mean a couple of different things and is something to consider when beginning to think about crypto insurance. On the network, the backbone of cryptocurrency is safe because each transaction is logged on a blockchain or a ledger of all moving parts of the particular cryptocurrency’s basis. In this way, blockchain technology is considerably safer than other transactions because it’s immutable and can’t be fabricated, or really hacked. The blockchain is the blockchain and transactions are basically set in virtual stone (this is a very non-technical way to look at this, but for the purposes of this article, we’ll leave it as such).

Where the safety of cryptocurrency has been questioned, necessitating the need or desire for crypto insurance is in a couple of key areas. For starters, crypto markets tend to be highly (and I mean highly with a capital “H”) volatile. This is for a few reasons. For starters, this is a deregulated space, not controlled or backed by a central authority or a fiat currency. When that is the case, there can be massive fluctuations in price when entities are entering or exiting the market. Government-backed currencies can mitigate this some by increasing or lowering interest rates and other mechanizations, and stock markets can simply shut down if things get too weird. Plus, those markets are typically FDIC insured meaning if there are shenanigans market-wide there might be a way to recoup losses.

Additionally, the other factor in cryptocurrency safety and where crypto insurance can really come in is where and how the coins are stored. This is where users and buyers in cryptocurrency have often felt the most pain. Currently, the two most popular ways to store crypto are either through an exchange (Coinbase, Bittrex, etc) or through cold storage wallets. There have been numerous stories throughout the years of hacks, thefts, lost crypto, lost passwords, and much more that have compromised crypto investments. It’s in this latter area that crypto insurance is really working into the mix.

WHAT IS CRYPTO INSURANCE?

On a base level, this is a pretty easy answer. Crypto insurance is insurance for your crypto. Done and done. Next question. Kidding aside, this question is a bit tougher to answer than a typical insurance question for a couple of reasons. For starters, insurance on an investment, or in actual money, has often been through the aforementioned FDIC. If your bank gets weird, in theory the FDIC insurance will cover the losses. But since crypto works well outside this system, FDIC insurance doesn’t apply.

The burgeoning market for crypto insurance is coming along now to help protect cryptocurrency owners against losses on those aforementioned exchanges or with their own cold storage wallets. While the FDIC might one day get there, it’s not the case right now. So for now, crypto insurance is limited to private companies looking to underwrite the risk, or the platforms themselves protecting against the downside. Both are in play, but not to the degrees one would expect with a traditional market. Banks and exchanges have considerably more protection here for both the individual user and the platform/ bank itself.

DOES COINBASE HAVE CRYPTO INSURANCE

Coinbase is the largest crypto exchange out there right now and they do have insurance. But it isn’t going to protect against a ton when it comes to the user. Coinbase has said they have crime insurance against situations where it was clear an account was hacked and funds (or coins) were removed. Coinbase has said in the past that they will refund users who can show that their accounts have been clearly hacked. This involves contact support and going through the proper channels to prove the case. This would also apply to larger-scale site-wide issues if a hack did occur.

But know this, and Coinbase is very specific about it in their terms and conditions. If they deem that the hack or unauthorized access to the account occurs because of negligence by the user, then the crime insurance isn’t going to kick in with those cases. In this way, they insist that users take special care with their own account security, passwords, etc. Loss of funds in these examples won’t provide crypto insurance.

WHO OFFERS CRYPTO INSURANCE?

For individual crypto holders, there are a few options out there when it comes to crypto insurance, but know that this is still very much a growing market. One is Coincover. This company offers crypto insurance for an individual buyer wanting to try and protect digital assets. They have a number of different insurance plans along these lines which range in price depending on the coverage. In general, across all of their different pricing tiers, Coincover will provide monitoring of your accounts and wallets, and a promise against theft protection. Where their prices range (or escalate) is in two areas, the amount of coverage needed and the number of wallets protected. The lowest plan starts at $1,000 in protection and one wallet for $39/ year. The largest plan goes up to 10 wallets and $100,000/ year. And for those who want to try it out, there is a 14-day moneyback guarantee. 

The Coincover product is backed by Lloyd’s of London and is really one of the first of its kind in this space. But it’s not going to be the last, not by a long shot. As investments increase and the marketplace only grows, there are sure to be more folks getting into the crypto insurance arena. Right now, considering the volatility of the markets, it makes sense that we haven’t seen too many companies take the leap into insuring these types of assets and markets. For the short term, it’s why having solid safety measures and security for your personal assets is tantamount. With very little in the way of backup or recourse for compensation in the event of loss, cryptocurrency remains unlike many other assets out there.

WHAT’S NEXT FOR THIS CRYPTO INSURANCE MARKET?

In the grand scheme of things, cryptocurrency is in its infancy. This is still basically a totally new endeavor and the world is only really starting to come around to the long-term ramifications of its growing popularity. While Bitcoin might not necessarily be the last coin standing when it’s all said and done (there are likely to be many), the size of the market and the technological advancements means that at least the concept is here to stay. And with that, there is likely to be an ever-growing crypto insurance market right along with it. With more money comes the need for more protection.

And as more and more investment firms and companies put cryptocurrency on their balance sheets, there is likely to be growth in the market around protecting those as well. This kind of money typically begets other money flooding the market. And while that could be in the form of new crypto projects, it’s also going to have a secondary effect of bringing in more players to prop up the ecosystem. That should be the case with crypto insurance which is sure to grow over the next few years.