Photo courtesy Worldspectrum on Pixabay.
Over the past few years, people have been drawn toward cryptocurrencies due to a fast rise in their prices. In the last decade, the returns by cryptocurrencies have beaten the returns of almost all the other asset classes. In the conventional assets, there are certain protections for investors that are periodically reviewed by the regulators but there are no regulations for the crypto investors in most countries.
When there would be progress in the regulatory aspects many organizations which are studying the benefits of cryptocurrency would take a firm decision, which would lead to greater investments in the digital asset space. As the regulatory environment is still evolving the insurer companies are trying to understand risk transfer options. With a developed regulatory framework the insurers would be more comfortable in providing more insurance products.
The crypto industry is not too old and not many of the crypto assets are covered by insurance. The insurance available today is bought by exchanges and crypto wallets and is not targeted at the consumers. The insurance is provided for mining, exchanges, payment processing, custodians, platforms, wallets, and infrastructure. This insurance coverage is for crime, theft, and business but the other insurance products are also being developed.
The price of Bitcoin surged to more than $68,000 in November 2021 and with it becoming more valuable there is a feeling among the individual investors and the institutions about the need for insurance. When more individuals and investors would be attracted to cryptocurrencies there would be greater demand for insurance.
Cryptocurrency insurance is slated to increase big time in the future due to the popularity of cryptocurrencies, aided by the swift increase in their price and due to thefts in online wallets and exchanges. Bitcoin has been in existence for a little over a decade and there have been many stories of hacks that have affected the investors as well as the exchanges. Online criminals have been active due to the accessibility and anonymity associated with cryptocurrencies. The Crypto currency insurance would give peace to the investors as it provides protection against such events. Investors would be able to invest and trade more freely without having to worry about the loss of all of their investments. The insurance provides the security and the expectation that they would be covered in case their cryptocurrency is stolen.
The insurance premiums are generally based on historical data; which is not there for the cryptocurrencies. There is too much volatility with the price swings and the regulatory uncertainty in most the countries makes the matter intricate for the insurance companies.
With the growth in the industry coming in and companies going public there would be a requirement for insurance solutions to protect the investors and the owners. Mergers and acquisitions in the blockchain field are also expected to grow. This would lead to more insurers. With a clearer regulatory environment, traditional finance companies would expand into the digital space, there would be more investments in the field with the introduction of more transactional risk insurance products.
The cryptocurrency insurance is available for-
In traditional insurance, crime insurance applies to cash, securities, or physical objects. Suppose an employee embezzles cash then the crime policy would kick in. The insurers now offer crime liability insurance for both the crime cold and hot storage solutions. In case there is a loss, hacking, or theft of cryptocurrency, data, and natural disasters you are covered.
Bitcoin ransom payment-
You would have heard many times about the cyber extortion in the news. The hackers encrypt data and threaten to publicize or delete it if you don’t pay the ransom. The cyber insurance policy will cover the ransom payments made in Bitcoin.
Cyber liability insurance-
Cyber liability insurance can protect businesses and individuals from internet-based risks and risks related to activities and infrastructure involved in blockchain and cryptocurrency. It covers the coin holders’ data lost due to negligence, hacking’ malware, or data breach.
Directors and officers’ legal liabilities-
Whenever there is a cybercrime incident there are regulatory and criminal investigations and even shareholders lawsuits. Directors and officers insurance is payable to the directors and officers in a company when there is a legal action for the alleged wrongful actions when they are directors and officers. It covers the defense costs associated with the investigations and the trials.
Decentralized finance (Defi) insurance for crypto-
The decentralized finance for cryptocurrency covers the smart contract failure. Smart contracts are programs stored on the blockchain that run when certain conditions are met. Smart contracts automate the execution of agreements resulting in immediate and secure transactions. It is without human intervention. This policy makes sure that the cryptocurrency software is unhackable and ensures digital assets are safe.