Cryptocurrency insurance serves the same purpose as standard policies you acquire for your business assets. It covers unforeseen events and identified threats, such as fraud, that can interfere with your operations in a business or leave you counting losses.
In crypto, hacking in blockchains and scams are the primary risks that can drain your investment account. Such potential risks and exposures force exchanges to consider insurance for customers’ crypto holdings in their platforms. The exchanges, however, have specifications that can lead to loss of compensation and the extent to which they protect investors’ portfolios.
Are you still wondering how insurance and the hyper-volatile crypto market work? Learning what your exchanges can cover concerning your crypto investments is crucial. You can watch here to get more insights into getting insurance for your crypto holdings. Below are seven things you should know.
- Underwriting Considerations Before Insuring Crypto
Insurance companies must evaluate your financial health and determine the level of undertaking concerning your crypto insurance. You can expect them to ask about your crypto management, security measures taken to safeguard your crypto holdings and exchanges and parties handling your portfolio.
In addition, where and how you store your crypto – whether hot or cold wallets – must be clear to the underwriter. These checks assess if you’re a worthy risk to the insurance company. They also determine how much you can receive compensation should you lose your crypto holdings.
- Crime Assessment And Crypto Coverage
Typically, insurance companies provide coverage for physical assets, such as cash and securities, and may compensate you according to the loss. Not all insurers accept or consider crypto as an insurable asset and may limit the coverage provision.
The insurers also conduct variable causes and events that may lead to the loss of your crypto holdings. So far, phishing, employee theft, social engineering and wallet hackings are the known reasons that can lead to the acquisition and compensation of crypto.
Moreover, insurance companies are skeptical about the underlying cryptocurrency market as the price value fluctuates rapidly due to volatility. It becomes tough to calculate the rate for compensation or the value of a crypto premium.
- Protection Offered By the Exchanges
Exchanges are also providing insurance for platform users. You can buy and hold your portfolio and get coverage according to the amount of cryptocurrency investment. However, such an approach to crypto insurance depends on the exchanges you use and the coverage practices.
In addition, the exchanges also seek self-insurance to avoid paying a premium to underwriting companies. They commit a percentage of transaction revenue as a buffer or contingency for losses incurred by platform users. But the awarding of crypto compensation works if the exchange was hacked and the amount lost doesn’t exceed the collective fund.
- Identified Investment Risks
The cryptocurrency market is hyper-volatile and may be subject to regulatory consideration. It becomes difficult to predict if the underlying digital currencies will be valuable in the future. Such uncertainties make investing in crypto a risky venture or acquiring insurance premiums for your portfolio.
- Limited Coverage Options
Crypto insurance isn’t comprehensive, and the underwriter might restore your portfolio if lost during your transaction. It may mean buying several insurance policies to cover different faucets and features of your crypto holdings. For instance, your private keys and smart contracts can have varying insurance provisions. Such conditions can complicate reimbursement for losses incurred and may need an experienced underwriter to implement.
- Few Insurers Provide Coverage
The insurance gaps exist in cryptocurrency and may be a viable undertaking for underwriters. But the nature of cryptocurrency makes it an unstable investment because it’s a speculative market, and the value fluctuation is uncontrollable. It exposes you to risk because your losses may not have a clear recovery plan. A few insurers are yet to develop comprehensive guidelines for policy acquisition.
- Government Consideration Of Crypto
The decentralised nature of cryptocurrency complicates things for insurers. Insurance companies follow government oversight bodies that regulate their products and services to customers. In addition, many countries are yet to accept crypto dealing, and the industry is considered a haven for criminals.
Therefore, insurance companies cannot formulate insurance provision policies because no government rules and regulations exist for cryptocurrency. It’s crucial to consider your country of residence and its consideration of the cryptocurrency market.
Final Thoughts
Cryptocurrency is an evolving market, and it may take time to establish rules and regulations to guide insurance companies. The current considerations aim to protect crypto holdings from theft and hacking of exchanges and wallets. Learn how the insurance and crypto mix is crucial before buying a policy. So, research the underlying cryptos and exchanges that provide insurance for platform users. It’ll help you safeguard your portfolio and avoid risks, such as fraud and scams, in cryptocurrency.
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