Investors who own conventional securities, like stocks or bonds, can rely on a level of protective regulation and insurance backing, either through the US government or private policies. However, investors in cryptocurrency don't have the same protections.
While there's been demand for cryptocurrency insurance to cover everything from deposits to theft, the primary concern is underwriting risks. Major insurance companies don't feel they can accurately assess risk factors due to a lack of cohesive rules and regulation in the crypto insurance industry. Though newer insurers are diving in headfirst, others are merely dipping their toes to test the temperature.
Given this level of unpredictability in a developing industry, how do you know if your cryptocurrency is safeguarded? And if it isn't, can you insure it? Here's everything you need to know about the new world of cryptocurrency insurance.
Is my cryptocurrency insured by the US government?
No. The federal government provides insurance for cash and deposits of conventional securities, like stocks and bonds, but not cryptocurrency assets -- at least not yet.
An independent agency of the federal government, the Federal Deposit Insurance Corporation, generally insures up to $250,000 per person, per bank. It covers all checking accounts, savings accounts, money market deposit accounts and certificates of deposit. It currently doesn't cover cryptocurrency.
However, the FDIC is considering it. In an initiative called the Crypto-Asset Policy Sprint, the FDIC has partnered with the Federal Reserve and the Office of the Comptroller to study cryptocurrency and coordinate "policies for how and under what circumstances banks can engage in activities involving crypto assets," according to FDIC Chairman Jelena McWilliams. However, we don't know how long this process will take or if the FDIC will decide to jump into the space at all.
Insurance on deposits at brokerage accounts for the purpose of purchasing securities currently falls under the Securities Investor Protection Corporation. Representatives from both the SIPC and the FDIC confirmed that neither currently insures crypto assets.
That means there's no federal protection for your cryptocurrency. As far as the government is concerned, you're on your own.
Does private insurance exist for cryptocurrency?
Yes, but it's still a nascent industry, and protection is extremely limited. "Most crypto assets are not currently covered by insurance, and that's due to the relative immaturity of the cryptocurrency market," said Brian O'Connell, an insurance analyst at Insurance Quotes.
The types of private crypto insurance that exist today are not currently targeted for consumers, but are mainly bought by exchanges and crypto wallets. The coverage includes crime and theft, custodial insurance coverage and business insurance, though there are more types in development, according to O'Connell. The future of crypto insurance could include decentralized finance, or "DeFi," insurance, which provides coverage for loss of funds due to lost private crypto keys or service provider shutdown, O'Connell explained.
Since crypto insurance exists primarily on the exchange and wallet level, whether you're covered as a crypto purchaser depends on the crypto services you use.
Can you purchase personal crypto insurance?
Yes. As far as we can tell, there's only one carrier that includes direct-to-consumer offerings: Breach Insurance. Breach's "Crypto Shield" product is the first regulated insurance product for crypto investors.
A Boston-based company, Breach is licensed and regulated in 10 states, including Massachusetts, California and New York. You must be a resident of one of the listed states in order to purchase a policy. The company will expand into more states later this year, according to Breach Insurance's CEO Eyhab Aejaz.
Breach Insurance currently covers 20 types of coins -- including bitcoin, ethereum and dogecoin -- within exchanges such as Coinbase, CoinList, Gemini or Binance.US. In other words, Breach doesn't insure crypto stored in third-party wallets, only those in certain exchanges. Breach's Crypto Shield is a theft insurance policy, meaning it'll cover hacks and exploitation of exchange's wallets, whether your crypto is held in hot or cold storage. Policies run anywhere from $2,000 worth of coverage to $1 million, and you can choose your deductible -- either 5%, 10% or 15% of the policy amount.
Other than Breach Insurance, we haven't found other insurers currently selling policies to consumers.
We reached out to national insurers such as Allstate and State Farm, which both confirmed they don't offer crypto insurance at this time. Moreover, the big players getting into the crypto insurance industry also don't appear to sell individual policies for consumers, either, not even the Great American Insurance Group, which was the first insurance carrier to provide crypto insurance. According to O'Connell, the company Etherisc is developing crypto wallet insurance for other insurers to cover crypto assets.
If you sell crypto insurance directly to consumers or know a carrier that does, please reach out to us.
Do wallets protect your crypto assets?
Yes, but the coverage is limited.
Coincover -- an insurance-backed cryptocurrency protection platform -- provides protection for many wallets, including Vesto, BitGo and Civic. According to Coincover's CEO David Janczewski, it offers an insurance-backed guarantee underwritten by Lloyd's of London for lost or stolen funds. This means you'll be protected (by virtue of using those wallets) from all theft and loss including brute force attacks, cyberattacks, device theft and hacking. And if your crypto is stolen because Coincover's technology fails to perform, Coincover will pay you back up to the amount you're eligible for (this amount depends on the level of protection the wallet you purchased offers).
However, not all wallets come with Coincover protection nor are all wallets insured. You'll want to check the fine print for any wallet you use to understand what protections are offered.
Do exchanges also offer crypto protection?
You might also be insured through the crypto exchange you use. For example, Coinbase, one of the largest US-based crypto exchanges, carries a $255 million crime insurance policy, according to O'Connell.
That coverage kicks in if Coinbase suffers a platform-wide cybersecurity breach. But if a hacker accesses your personal account and steals your crypto, Coinbase's insurance won't cover that. And in the event of a platform-wide cyberattack, you still may not get all of your assets back. Coinbase's website explains that if "total losses … exceed insurance recoveries ... your funds may still be lost."
Likewise, BlockFi and Bitstamp, two other crypto exchanges, carry crime insurance. BlockFi provides theft insurance through its primary custodial wallet, Gemini.
Bitstamp not only has crime insurance with coverage totaling $300 million -- its assets are also insured through the wallets it uses: BitGo and Copper. Bitstamp stores 95% of its digital assets offline in cold storage, which isn't connected to the internet and is more secure from hacks.
Binance.US and FTX, other popular exchanges, didn't respond to a request for comment.
The future of the industry
The 21st century is witnessing the rise of digital assets, and the crypto insurance industry is starting to emerge along with it. Though it has big potential, it's not quite ripe yet.
"Right now, cryptocurrencies are a major risk for insurers, mostly because of their unregulated status," O'Connell said. "It's still a Wild West atmosphere and that's exactly the coverage environment the insurance industry doesn't like."
Given the limited coverage that exists today, you'll likely want to brush up on crypto security measures and actions to take if your crypto is stolen.
Correction, Feb. 8: Coincover is a technology provider with an insurance-backed guarantee that your crypto funds will not be lost or stolen. Additionally, Coincover does not yet offer a direct-to-consumer product.