Paul Sanchez
The rise in popularity of cryptocurrencies has led to a surge in crypto theft, scams, and other crimes. Crypto exchanges are vulnerable to frequent online attacks, regulatory uncertainty, and operational risks. As a result, investors are increasingly seeking ways to protect their digital assets and prevent financial loss. While crypto insurance is available, it is not federally insured or protected, and there is no government-backed scheme like deposit insurance for traditional bank deposits. However, some crypto exchanges like Coinbase, Gemini, and Crypto.com carry commercial crime insurance to protect against breaches, system failures, theft, and physical damage. Crypto insurance providers like Canopius offer protection for cryptocurrency wallets, covering cyberattacks, fraudulent transactions, and unauthorised access to digital wallets. The cost of crypto insurance varies depending on factors such as the amount of coverage needed and the type of cryptocurrency assets being insured.
| Characteristics | Values |
|---|---|
| Crypto insurance providers | Canopius, Superscript, Breach, Evertas, etc. |
| Protection offered | Protection for cryptocurrency wallets, including coverage for cyberattacks, fraudulent transactions, unauthorised access to digital wallets, errors in transactions, etc. |
| Crypto exchanges with insurance | Coinbase, Gemini, Robinhood, Crypto.com, Binance, etc. |
| Type of protection | Commercial crime insurance, protection against physical damage, destruction, third-party theft, etc. |
| Challenges | Crypto is a high-risk investment, and insurance may not cover all potential losses. There is no federal protection for cryptocurrency. |
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What You'll Learn
Crypto insurance providers
One of the leading crypto insurance providers is Canopius, which offers tailored coverage options to meet the evolving needs of its clients. Canopius provides protection for cryptocurrency wallets and digital assets, including coverage for cyberattacks, fraudulent transactions, and unauthorised access. Their solutions are built with a focus on risk management, recognising the rapidly evolving threats within blockchain technology.
Another notable crypto insurance company is Evertas, which is the first and only company dedicated solely to crypto insurance. Evertas is backed by Lloyd's of London, one of the world's oldest and most trusted insurers. Their policies offer coverage of up to $360 million per policy, protecting digital assets and cash from theft, loss, or damage caused by external bad actors and attacks. Evertas also provides protection for crypto company leadership, with up to $10 million in coverage against third-party legal action.
While these companies offer crypto insurance, it's important for individuals to assess their own circumstances, risk tolerance, and the specific terms and conditions of the insurance policies before deciding if crypto insurance is worth it for them. The cost of crypto insurance can vary depending on factors such as the amount of coverage needed, the type of cryptocurrency assets being insured, and the level of risk associated with those assets.
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Crypto exchange insurance
Unlike traditional bank deposits, cryptocurrencies are not typically insured by government-backed schemes. Crypto and blockchain systems operate on decentralised finance (DeFi) principles, which enable financial transactions without relying on banks or other intermediaries. Decentralised insurance, which is still in its early days, allows users to receive coverage through smart contracts. These are automated programs that execute agreements when specific conditions are met. For example, if your cryptocurrency keys are stolen, a smart contract could automatically transfer funds to your account.
Some crypto exchanges like Coinbase, Gemini, and Robinhood carry commercial crime insurance to protect against breaches or system failures within their platforms. Crypto.com provides insurance against physical damage, destruction, and third-party theft. It is important to note that the language of a crypto exchange insurance policy must be analysed and changed by experts independent of insurance brokers or lobbyists to maximise results.
The cost of crypto insurance can vary depending on factors such as the amount of coverage needed, the type of cryptocurrency assets being insured, the level of risk, and the specific terms and conditions of the policy. Crypto insurance may not be worth it for everyone, and it is important to consider individual circumstances and risk tolerance.
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Risks and limitations
Investing in cryptocurrencies carries inherent risks, and insurance may not cover all potential losses. Unlike traditional bank deposits, cryptocurrencies are not insured by government-backed schemes. While some exchanges carry commercial crime insurance to protect against breaches or system failures, this may not cover individual accounts from losses in the event of unauthorised access due to a breach or loss of credentials.
If a crypto exchange goes bankrupt, insurance provides minimal protection as customers are usually last in line for any payouts. If you store your private keys in a wallet that is not created or maintained by the exchange (a non-custodial wallet), you may not be eligible for coverage. There are currently no insurance policies that protect consumers who hold and manage their private keys independently.
The language of a crypto exchange insurance policy must be analysed and changed by experts independent of insurance brokers or lobbyists to maximise results. The cost of crypto insurance can vary depending on factors such as the amount of coverage needed, the type of cryptocurrency assets being insured, the level of risk associated with those assets, and the specific terms and conditions of the insurance policy.
While crypto insurance can provide peace of mind and financial security, it is important to note that it may not cover all potential losses. The complex and decentralised nature of cryptocurrency poses significant challenges for underwriters, leaving investors with limited insurance options.
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Scams and theft
Scammers are always finding new ways to defraud people of their money using cryptocurrency. Some common scam tactics include demanding payment in cryptocurrency, guaranteeing profits or big returns, and combining online dating and investment advice. It is important to never mix the two, as scammers may try to gain your trust to then ask you to send them crypto. No legitimate business will demand you send cryptocurrency as a form of payment or protection. Additionally, be wary of companies that make big promises or guarantees, as only scammers promise "no risk" or "safe" places to deposit your money.
To protect yourself, it is important to research the crypto company thoroughly. Search for reviews, and look for any signs of scams or complaints. You can also check out websites like ftc.gov/cryptocurrency to learn about different scams and how to report them. Some companies, like Canopius, offer crypto insurance solutions to protect against unauthorised access to digital wallets, cyberattacks, errors in transactions, and more. The cost of crypto insurance can vary depending on factors such as the amount of coverage needed and the type of cryptocurrency assets being insured.
It is also important to understand that cryptocurrency transactions are typically recorded on a public ledger called a "blockchain". This ledger includes details such as the transaction amount and the sender's and recipient's wallet addresses. While people often talk about cryptocurrency transactions as anonymous, these details can sometimes be used to identify the people involved in the transaction. This information can be used by scammers to steal your money or your identity.
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Government-backed schemes
Unlike traditional bank deposits, cryptocurrencies and the exchanges they are traded on are usually not insured by government-backed deposit insurance schemes. For example, the US Federal Deposit Insurance Corporation (FDIC) protects up to $250,000 if an FDIC-insured bank fails. However, this does not extend to crypto-based financial services providers. In 2024, the FTC warned that Voyager Digital LLC, a crypto financial services provider, falsely claimed that money deposited through its "Voyager App" was FDIC-insured.
While government-backed insurance schemes for crypto holdings are lacking, some private insurers have emerged to fill this gap. These insurers offer tailored coverage against various risks in the crypto space, such as theft, fraud, cyberattacks, transaction errors, and unauthorised access to digital wallets. However, it is important to note that these insurance protections are not comprehensive and generally do not cover losses from market fluctuations, Ponzi schemes, direct hardware loss, or blockchain failures.
One example of a private insurer offering crypto insurance is Canopius, which provides essential digital asset protection for clients. Canopius works closely with its clients to develop transparent relationships and offers bespoke coverage for their evolving needs.
Another approach to insuring crypto holdings is through exchange-established funds. For instance, in 2018, the exchange Binance established the Secured Asset Fund for Users (SAFU), an emergency insurance fund that uses a percentage of trading fees to safeguard user funds. When Binance was hacked for $40 million in 2019, it claimed that its investors were unaffected due to the protections provided by SAFU.
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Frequently asked questions
Yes, some crypto exchanges are insured. Exchanges including Coinbase, Gemini, and Crypto.com carry commercial crime insurance to protect against breaches, system failures, physical damage, and third-party theft. In 2018, Binance established the Secured Asset Fund for Users (SAFU), an emergency insurance fund that uses a percentage of trading fees to safeguard users. However, it's important to note that crypto insurance may not cover all potential losses, and there is currently no federal protection for cryptocurrency.
Crypto exchange insurance provides coverage against risks such as cyberattacks, hacking incidents, theft, fraud, and operational disruptions in the cryptocurrency space. It offers financial security and risk mitigation, assuring users and investors that their digital assets are protected in the event of unforeseen events.
You can insure your cryptocurrency holdings with companies like Canopius, which offer crypto fraud protection and coverage for unauthorized access to digital wallets, cyberattacks on exchanges, and errors in transactions. The cost of crypto insurance can vary depending on factors such as the amount of coverage needed, the type of cryptocurrency, and the level of risk associated with those assets. It's recommended to speak to a specialist underwriter for a tailored crypto insurance policy quote.
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