Jane Dotson
Bitcoin is a digital currency that uses cryptography to secure transactions without a third party. Unlike traditional currencies, it is largely unregulated, has no central issuer, and is not held or offered by major banks. With the growing popularity of Bitcoin and other cryptocurrencies, there is an increasing need for insurance coverage for virtual assets lost or stolen under specific circumstances. While some insurance companies are starting to offer coverage for cryptocurrencies, it is not widely available and the coverage that does exist is limited.
| Characteristics | Values |
|---|---|
| Is bitcoin money insured? | No, bitcoin money is not insured. |
| What about other cryptocurrencies? | Cryptocurrency insurance is a new type of coverage for the insurance industry, and it is slowly being introduced. |
| Who is insured? | Most cryptocurrency insurance providers only offer services to institutions like exchanges, and most policies do not cover consumers. |
| What do insurance policies cover? | Some policies cover virtual assets lost or stolen under specific circumstances. For example, if a software or hardware failure or weak point in their cyber security lets hackers through, your crypto is likely covered. |
| What don't insurance policies cover? | Insurance policies do not cover losses from market fluctuations, Ponzi-related schemes, direct hardware loss, and cryptocurrency losses related to various blockchain failures. |
| What about FDIC insurance? | FDIC insurance does not cover crypto. If your bank is FDIC-insured, you are protected up to $250,000 if the bank fails, but this does not apply to crypto-based financial services providers. |
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What You'll Learn
Bitcoin insurance coverage
As a result, coverage options for Bitcoin are currently limited and may not provide comprehensive protection. The first insurer to offer cryptocurrency insurance in the United States was the Great American Insurance Group, which provided coverage for mercantile and governmental customers who accepted Bitcoin. Other companies like BitGo, Coinbase, and Bakkt have since followed suit, offering insurance coverage for digital assets in their custody, with policies ranging from $125 million to $255 million.
It is important to note that these policies often come with specific conditions and may not cover all types of losses. For example, Coinbase's policy does not cover thefts due to unauthorised access or third-party wallet hacks. Additionally, insurance for Bitcoin may not extend to losses from market fluctuations, Ponzi schemes, direct hardware loss, or blockchain failures.
As the popularity of Bitcoin and other cryptocurrencies continues to grow, insurance providers are recognising the need to offer coverage for virtual and digital asset theft and loss. Some insurers may require their clients to adopt certain security protocols or deposit funds with a reliable custodian to reduce risk exposure. While the options are currently limited, the increasing demand for Bitcoin insurance may lead to more comprehensive coverage options in the future.
In conclusion, while Bitcoin insurance coverage is available, it is important to carefully review the specific conditions and limitations of the policies offered by different providers. As the market matures and Bitcoin becomes more widely accepted, we can expect to see more insurance companies stepping in to provide coverage for this emerging asset class.
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Risks of insuring bitcoin
Bitcoin is a virtual or digital currency that uses cryptography to verify and secure transactions without a third party. Unlike traditional currencies, Bitcoin is largely deregulated, has no central issuer, and is not held or offered by major banks. The lack of regulatory oversight and common security standards for hot and cold storage are among the factors that make it difficult to assess risk. This also means that insurance policies can be very costly.
The risks of insuring bitcoin are numerous. Firstly, there is a lack of historical data available for insurers to assess risk factors accurately. The volatility and instability of the crypto market bring a significant amount of risk. Regulatory uncertainty and a lack of oversight at cryptocurrency exchanges further complicate matters for insurers interested in providing services to the industry.
Additionally, the very nature of cryptocurrency means that most risks are related to the online world, including cyberattacks and hacks, which are common targets for hackers and thieves. The more entities involved in storing and securing Bitcoin, the more vulnerabilities there are, and thus more opportunities for thieves.
Another risk of insuring Bitcoin is the potential for high costs. Insurance policies for Bitcoin can be expensive due to the high value of the asset and the limited number of insurers offering coverage. For example, insurance for the equivalent of $100,000 of crypto was priced at $2,454 in March 2022, which is significantly higher than the cost of theft protection technology.
Finally, there is a risk of limited protection. While exchanges and wallets offer some protection, their insurance policies may only cover company-wide breaches and not theft from individual accounts. This means that if an individual's crypto is stolen due to a hack, they may not be covered and will lose their funds.
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Insurers offering bitcoin insurance
The unregulated nature of the crypto industry, the lack of historical data, and the volatility of the market make it difficult to insure crypto companies. However, some insurers and brokers are prepared to take on the risk.
Great American Insurance Group
The Great American Insurance Group was the first company to provide cover for crypto assets in the form of crime and custody policies. Their product covers bitcoin holders for forgery and computer fraud, among other things.
Nexus Mutual
Nexus Mutual is a decentralised insurance fund operating on the Ethereum blockchain. It offers "discretionary cover" with community-driven management.
Evertas
Evertas is the self-proclaimed "world's first crypto-asset insurance company".
Lloyd's of London
Lloyd's of London has launched a cryptocurrency wallet solution for Coincover.
AXA
AXA is a Switzerland-based all-lines insurance provider that accepts Bitcoin as a payment option for its customers to pay for all of their non-life products.
Innovation Insurance Group
The Innovation Insurance Group is an insurance consulting firm and brokerage founded by Ty R. Sagalow, former Chief Underwriting Officer, General Counsel, and Chief Innovation Officer at AIG. The company focuses on three core practice groups: product development, expert witness services, and bitcoin industry brokerage services.
Embroker
Embroker provides business insurance for cryptocurrency companies.
Bitcoin Insurance Agency
The Bitcoin Insurance Agency helps find the right insurance carriers for the specialised needs of the bitcoin community.
While the above companies are some of the more prominent names in the space, there are a growing number of companies across a wide range of industries that are embracing cryptocurrencies and allowing customers to use them as an official method of payment.
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Bitcoin insurance claims
Canopius, for example, offers crypto insurance that covers various risks such as unauthorised access to digital wallets, cyberattacks on cryptocurrency exchanges, and errors in transactions. Their policies can be tailored to meet specific needs, with coverage options depending on factors like the amount of Bitcoin insured, the level of risk, and specific terms and conditions.
BitGo, a digital asset provider, offers a policy that covers up to $250 million for assets in its custody, but only when it has sole control over the client's cryptocurrencies. Coinbase, a popular crypto broker, has a $255 million policy for coins stored in hot wallets, but this does not cover thefts due to unauthorised access or third-party wallet hacks.
While these options exist, it is important to note that Bitcoin insurance claims are not without their challenges. The inherent risks associated with cryptocurrencies mean that insurance may not cover all potential losses. Regulatory uncertainty and the lack of oversight at cryptocurrency exchanges further complicate matters for insurers. As a result, coverage options may be limited, and policies tend to focus on specific risks related to digital assets, such as cyberattacks, loss of private keys, and fraud.
In conclusion, while Bitcoin insurance claims are a developing area, they provide Bitcoin holders with some peace of mind and financial security. As the market evolves, we can expect to see more insurance companies stepping in to provide coverage options for Bitcoin holdings, helping to mitigate the risks associated with this relatively new and volatile digital asset class.
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Future of bitcoin insurance
The future of bitcoin insurance is promising, with growing interest from both consumers and insurance providers. Bitcoin and other cryptocurrencies are decentralised currencies that enable global financial transactions without a central authority. The recent surge in popularity and price has attracted major investors, including Tesla, which acquired $1.5 billion in bitcoin in 2021.
As the cryptocurrency market matures, it is attracting players from other industries, including insurance. The main challenge for insurers has been the unique risks associated with cryptocurrencies, such as cyber attacks, price volatility, and regulatory uncertainty. However, as digital assets become better understood and more widely accepted, insurers are increasingly recognising the necessity and opportunity to provide coverage for virtual and digital asset theft and loss.
Some companies have already started offering insurance services for businesses dealing with cryptocurrencies, and a few insurers have even begun accepting bitcoin as payment for premiums. The first insurer to offer cryptocurrency insurance in the United States was the Great American Insurance Group, which announced coverage for bitcoin holders against forgery and computer fraud in 2014. Other examples include BitGo, a digital asset provider with a $250 million policy for assets in its custody, and Coinbase, a popular crypto broker with a $255 million policy for coins stored in hot wallets.
As more exchanges and custodians offer insurance coverage options, the bitcoin insurance landscape is expected to evolve further. However, it is important to note that coverage for bitcoin and other cryptocurrencies is still limited, and consumers should carefully consider the scope of protection provided by their chosen exchange or custodian.
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Frequently asked questions
Bitcoin is not insured by the Federal Deposit Insurance Corporation (FDIC). The FDIC protects your savings if your bank can’t meet its financial obligations. However, this does not extend to cryptocurrencies.
Yes, you can get insurance for your bitcoin, but it may be expensive and the coverage is limited.
Bitcoin insurance covers virtual assets lost or stolen under specific circumstances. For example, if your bitcoin is stolen due to a hack or failure of the exchange's system, you may be covered. However, it generally won't cover losses from market fluctuations, Ponzi schemes, direct hardware loss, or blockchain failures.
Several companies provide insurance services for bitcoin and other cryptocurrencies, including BitGo, Coinbase, Bakkt, and Coincover.
As with all types of insurance, it depends on the coverage and the price. Bitcoin insurance can provide peace of mind and financial protection in the event of theft or loss. However, it is important to carefully review the terms and conditions of any insurance policy before purchasing it to ensure it provides the coverage you need.
