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Cryptocurrency Insurance Market Shows Promise Despite Cautious Approach by Major Insurers

By Justin Grensing

Cryptocurrency investors are showing a strong demand for asset protection in the form of cryptocurrency insurance. But while some providers see the cryptocurrency insurance market as promising, many are wary of entering.

One of the attractions of cryptocurrency, particularly for small and midsized enterprises (SMEs), has been the ability to avoid the mainstream financial system and the oversight, intrusiveness, and regulation that come with it. But the meteoric rise of cryptocurrency has in many ways outpaced the infrastructure built to support it. Crypto insurance policies are designed to protect against cryptocurrency losses, theft, and general cryptocurrency capital loss.


The Pros and Cons of a "Wild West" Cryptocurrency Market


The cryptocurrency market has been compared to the "Wild West," due in large part to a lack of regulation.1 By bypassing traditional banks as intermediaries, cryptocurrencies allow transactions to be made relatively quickly and cheaply. Quick and easy payments benefit businesses generally, but they also help even the playing field by removing obstacles that often put SMEs at a disadvantage when competing with major corporations. For example, cryptocurrencies don't require banks to facilitate transactions, thereby reducing processing fees, which can be costly for smaller merchants.2


Cryptocurrency can also expand an SME's international sales opportunities by leveraging its increasing acceptance as a medium of international trade.3 Moreover, since transactions using traditional currencies can take several days to process, exchange rates between the buyer country currency and the seller country currency may fluctuate while funds are in process, causing a loss for one of the parties. Cryptocurrencies mitigate against this FX risk both by facilitating a faster transfer of funds and by providing a third currency with its own exchange rate—but that, in turn, can also be a source of additional currency exchange risk.


But there is a downside to lax oversight as well. Cryptocurrency is effectively a bearer asset, meaning possessing a bitcoin (BTC) or other crypto coin effectively establishes ownership, just like cash, and entitles the possessor to the underlying value.4 Consequently, when someone’s bitcoins are stolen, it’s difficult to establish rightful ownership without actual possession of that bitcoin.5


Cryptocurrency theft is a real risk. High profile cryptocurrency thefts have gained media attention: Mt. Gox lost $460 million to hackers in 2014;6 Bitfinex lost 120,000 BTC in 2016;7 and Coincheck lost $530 million belonging to 260,000 customers in 2018.8 In the first three quarters of 2018 alone, the theft of cryptocurrencies through hacks on exchanges and trading platforms amounted to almost $1 billion, a 250 percent increase over 2017.9


Other, less nefarious risks abound as well, ranging from human errors and mistakes to technical glitches and price volatility.10


Cryptocurrency Insurance Market Supply Lags Far Behind Demand


These risks have led cryptocurrency investors and users to seek out ways to protect their assets, and firms are increasingly seeing crypto insurance as a lucrative business line.11 Providers of crypto insurance can charge annual premiums equal to between one and five percent of the covered assets.12


But despite the highly-publicized risks, major industry players say they aren’t aware of any insurer that’s yet had to pay a crypto insurance claim.13 That’s led to increased investment in crypto insurance by firms like Marsh & McLennan—which recently formed a team of 10 staff dedicated solely to servicing blockchain startups—and Aon, which claims over fifty percent of the crypto insurance market.14


More broadly, a recent Greenwich Associates survey found that 72 percent of institutional investor respondents said they believe cryptocurrency has a place in the future,15 and Aon says some insurers have even started adding crypto insurance as part of their general policies.16,17


And yet, the supply side of the cryptocurrency insurance market is not keeping up with demand. While the global market capitalization of cryptocurrencies is in excess of $100 billion, there is only $6 billion in available insurance coverage.18 Industry observers have found a great deal of reluctance on the part of established insurance companies to even discuss their involvement and level of exposure in the crypto insurance market.19


Crypto exchanges have been cited for failing government security checks, and potential insurers see a lack of industry infrastructure as a risk of offering policies covering crypto.20,21 A challenge for crypto currency investors is convincing potential crypto insurance providers that the level of risk involved is manageable.22 This is difficult when providers are unfamiliar with how cryptocurrency works in the first place, and when what they do hear about the industry is high-profile news coverage of hacked bitcoin accounts and volatile markets causing dramatic cryptocurrency capital losses. Additionally, the novelty of cryptocurrency markets means that potential providers are deprived of the historical data on cryptocurrency losses they would otherwise use to predict the value of the risk they are being asked to assume.23


Faced with limited supply and high premiums of crypto insurance, some cryptocurrency investors are opting to self-insure or simply forgo insuring their crypto assets altogether.24,25


For SMEs, the high costs of crypto insurance may negate two of the primary benefits of using cryptocurrency: speed and cost. The high premiums and restrictions imposed by crypto insurance providers re-introduce some of the cost and hurdles avoided by bypassing traditional banks.26



With high volatility and relatively undeveloped market infrastructure, cryptocurrencies are difficult to value. Additionally, the brief history of cryptocurrency means there is virtually no data on which to estimate risk of loss. So, it's understandable why some insurance providers are wary of taking a large position in the cryptocurrency insurance market. But those willing to accept the risk that comes with being a first mover may find abundant demand.

Justin Grensing - The Author

The Author

Justin Grensing

Justin Grensing is a freelance writer, MBA and attorney who covers topics ranging from finance, marketing, human resources, legal/compliance, and general business.


1. “Cryptocurrency ‘Wild West’ must come to an end, UK lawmakers say,” CNBC;
2. “Cryptocurrency: What Does It Mean For Your Small Business?” Forbes;
3. “What Small Businesses Should Know About Cryptocurrency,” Business New Daily;
4. “Cryptocurrencies Are Digital Bearer Assets,” Ultimate Money;
5. “CSI crypto: Can victims recover stolen coin?” Brave New Coin;
6. “The Inside Story of Mt. Gox, Bitcoin’s $460 Million Disaster,” Wired;
7. “Biggest Bitcoin Hacks: 7 of The Largest Breaches in History,” Coin Bureau;
8. “$530 million cryptocurrency heist may be biggest ever,” CNN Business;
9. “Cryptocurrency theft his nearly $1 billion in first nine months: report,” Reuters;
10. “Beware of Crypto Risks – 10 Risks To Watch,” Forbes;
11. “Cryptocurrency Insurance: More Companies Join The Bandwagon,” CCN;
12. “Interest in Crypto Insurance Grows, Despite High Premiums, Broad Exclusions,” Insurance Journal;
13. Ibid.
14. Ibid.
15. “Cryptocurrency industry faces insurance hurdle to mainstream ambitions,” Reuters;
16. “The Institutionalization of Cryptocurrency,” Greenwich Associates;
17. “Insurance Giants See ‘Big Opportunity’ in Cryptocurrency Storage Coverage,” CCN;
18. “The Crypto Insurance Market May Total $6 Billion. That’s Nowhere Near Enough,” CoinDesk;
19. “Interest in Crypto Insurance Grows, Despite High Premiums, Broad Exclusions,” Insurance Journal;
20. “Two Thirds of Korean Crypto Exchanges Fail Government Security Check,” Coin Desk;
21. “Cryptocurrency Industry Says Inadequate Insurance Deters Investors,” Insurance Journal;
22. “What Agents Should Know About Cryptocurrency Insurance Market,” Insurance Journal;
23. “Insurers gingerly test bitcoin business with heist policies,” Reteurs;
24. “Insurance Giants See ‘Big Opportunity’ in Cryptocurrency Storage Coverage,” CCN;
25. “Bitcoin Insurance Policies – What They Are and Do You Need Them,” Coin Central;
26. “Insurers Begin to Offer Cryptocurrency Theft Cover, Tackling Risks of Growing Sector,” Insurance Journal;

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