Haris Ashley
Bitcoin is a well-known cryptocurrency, but it is important to understand the risks associated with it. Cryptocurrency accounts are not backed by a government and are not federally insured. This means that if something happens to your account or funds, such as the company that provides storage for your wallet going out of business or being hacked, you may not be able to recover your money. To address this concern, some companies in the crypto space offer crypto insurance, which covers virtual assets that are lost or stolen under specific conditions. However, these policies can be expensive due to the absence of regulatory oversight and uniform security standards. As of 2025, the FDIC has eased crypto rules for banks, allowing them to engage in crypto-related activities without prior approval, as long as they manage the associated risks.
| Characteristics | Values |
|---|---|
| Are Bitcoin accounts backed by the government? | No |
| Are Bitcoin accounts federally insured? | No |
| Are Bitcoin accounts insured by the government like U.S. dollars deposited into an FDIC insured bank account? | No |
| If something happens to your Bitcoin account or cryptocurrency funds, does the government have an obligation to step in and help get your money back? | No |
| Are crypto-related activities allowed by the FDIC without prior notice? | Yes |
| Are banks allowed to dabble in cryptocurrency activities without receiving prior approval? | Yes |
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What You'll Learn
Cryptocurrency accounts are not federally insured
The volatile nature of cryptocurrency means that its value can change rapidly, even by the hour, and there is no guarantee that it will increase in value over time. This makes cryptocurrency a high-risk investment. The lack of federal protection for cryptocurrency, coupled with the increasing prevalence of crypto theft and scams, leaves investors with limited insurance options.
While some exchanges, such as Coinbase, Gemini, and Robinhood, offer commercial crime insurance to protect against breaches or system failures, this type of insurance is typically expensive and does not cover all possible scenarios. For example, if a crypto exchange goes bankrupt, insurance provides minimal protection, as customers are usually last in line for any payouts.
To protect your funds, you could use a non-custodial wallet where you control the private keys. However, this approach places all the responsibility on you, and if you lose your private keys, you may not be able to recover your funds.
It's important to note that only scammers will demand payment in cryptocurrency or guarantee profits. Be cautious when considering investing in cryptocurrency and always do your research to avoid potential scams.
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Crypto insurance policies can be expensive
Cryptocurrency insurance is a new type of coverage for the insurance industry, exchanges, and other crypto service providers. Crypto insurance policies can be expensive. They are designed to provide financial protection for those operating and participating in the space. Most providers offer policies to cryptocurrency exchanges or other businesses with capital invested in cryptocurrency-linked operations.
The policies typically offer coverage for institutions such as exchanges rather than individual consumers. These policies aim to safeguard against losses resulting from specific circumstances, such as exchange hacks or system failures. For example, Coinbase uses crime insurance to protect its assets from theft, including cybersecurity breaches.
Crypto insurance policies generally cover a range of risks associated with digital assets. These may include:
- Theft: Protection against unauthorized access and theft of cryptocurrency from online wallets or exchanges.
- Hacks: Coverage for losses resulting from cybersecurity breaches and hacking attempts.
- System failures: Insurance against losses caused by technical glitches or failures in the exchange's systems.
Some exchanges have established their insurance funds to protect users. For instance, Binance created the Secured Asset Fund for Users (SAFU) in 2018, which uses a percentage of trading fees to safeguard user funds in emergencies.
Wallet insurance protects cryptocurrency holders from losses related to their digital wallets. Ledger, one of the leading hardware wallet providers, offers insurance for its Ledger Vault platform through a customized crime insurance program. This policy provides up to $150 million in coverage for third-party theft of master seeds and private keys, secure transmissions of master seed fragments, and insider employee theft.
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Crypto exchanges carry commercial crime insurance
Cryptocurrencies like Bitcoin are not insured by the federal government. In fact, cryptocurrency accounts are not backed by any government. This means that if something happens to your cryptocurrency funds, the government has no obligation to help you recover your money.
However, some crypto exchanges carry commercial crime insurance to protect against breaches or system failures within their platforms. For example, Coinbase offers users crime insurance of up to $255 million in insurance coverage. Similarly, Gemini maintains commercial crime insurance for digital assets held in trust for customers in their online hot wallet of up to $200 million. Robinhood also provides crime insurance covering assets for theft and data breaches.
Crypto insurance is only available to cryptocurrency service providers (businesses). This insurance offers limited reimbursement of funds lost due to theft. For example, in 2018, when Binance was hacked and had over $400 million stolen, their insurance policy only enabled them to partially refund their affected customers.
Decentralized insurance allows users to receive coverage through smart contracts, which are automated programs that execute agreements when specific conditions are met. For instance, if your cryptocurrency keys stored on an exchange are stolen, a smart contract could automatically transfer funds to your account. However, these concepts are still in their early days and are unproven and unregulated.
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FDIC: Banks can engage in crypto-related activities
Cryptocurrency accounts are not backed by governments. Cryptocurrencies are not insured by the government like US dollars deposited into an FDIC-insured bank account. If something happens to your cryptocurrency funds, the government has no obligation to help you retrieve them.
However, the Federal Deposit Insurance Corporation (FDIC) has recently announced that banks can engage in legally permitted crypto-related activities without receiving prior regulatory approval, as long as they manage their risks appropriately. This move reverses the previous FDIC policy, which required banks to clear any crypto activities in advance. The FDIC's latest guidance rescinds the 2022 guidance that required FDIC-supervised institutions to notify the FDIC before engaging in any crypto-related activities.
Crypto-related activities include "acting as crypto-asset custodians, maintaining stablecoin reserves, issuing crypto and other digital assets, acting as market makers or exchange or redemption agents, and participating in blockchain- and distributed ledger-based settlement or payment systems." Banks must still "'adequately manage the associated risks' of engaging in crypto-related activities. This includes market and liquidity risk, operational and cybersecurity risks, consumer protection requirements, and anti-money laundering requirements.
The FDIC's move follows the Office of the Comptroller of the Currency's guidance that national banks can engage in certain cryptocurrency-related activities. The FDIC's announcement is also consistent with the Trump administration's efforts to reform crypto regulation. On January 23, 2025, the president signed an executive order establishing the Presidential Working Group on Digital Asset Markets to provide recommendations regarding federal cryptocurrency regulation.
While the FDIC's decision allows banks to engage in crypto-related activities, it is important to note that cryptocurrency is still not federally insured. Investors seeking ways to safeguard their crypto assets can explore insurance options, but these are limited due to the decentralized and complex nature of cryptocurrency. Crypto insurance policies can also be expensive, typically costing around 2.5% of the investment.
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Crypto and blockchain systems operate on decentralised finance
Cryptocurrencies like Bitcoin are not insured by governments. For example, if a company that provides storage for your cryptocurrency wallet goes out of business or is hacked, the government has no obligation to step in and compensate you.
DeFi applications are designed to communicate with a blockchain, allowing people to use their money for purchases, loans, gifts, trading, or any other way they want without a third party. These applications are programs installed on devices like personal computers, tablets, or smartphones that make it easier to use. Without the applications, DeFi would still exist, but users would need to be comfortable and familiar with using the command line or terminal in the operating system that runs the blockchain.
Blockchain technology is architected so that users can exchange cryptocurrency securely and directly with one another, without middlemen. DeFi payment solutions are creating a more open economic system for underbanked and unbanked populations and also helping large financial institutions streamline market infrastructure and better serve wholesale and retail customers.
DeFi also enables next-generation compliance analysis around the behaviour of participating addresses rather than participant identity. These know-your-transaction (KYT) tools, such as those provided by MetaMask Institutional, help assess risk in real-time and protect against fraud and financial crimes.
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Frequently asked questions
No, Bitcoin and other cryptocurrencies are not federally insured. Cryptocurrency accounts are not backed by governments or central banks. If something happens to your account or funds, the government has no obligation to help you recover your money.
Cryptocurrencies are recognised as high-risk investments due to their decentralised and complex nature. The lack of central control or standardisation makes it difficult for federal bodies to insure them.
Some crypto exchanges, such as Coinbase, Gemini, and Robinhood, offer commercial crime insurance that covers theft, data breaches, and system failures. Additionally, decentralised insurance models in the crypto space allow users to receive coverage through smart contracts.
Crypto insurance policies can be expensive, typically costing around 2.5% of the insured investment. For example, insuring $10,000 worth of cryptocurrency may cost $250 annually.
The Federal Deposit Insurance Corporation (FDIC) has recently eased restrictions, allowing banks to engage in crypto-related activities without prior approval. This indicates a shift towards greater acceptance of crypto by federal institutions, and further regulatory changes may follow.
