Cryptocurrency Insurance: Can You Insure It?

The Rise of Cryptocurrency

Cryptocurrency is now hard to ignore by the markets and the masses as it has been sharply increasing in value over the last few years. At the time of this writing, the overall cryptocurrency market cap is currently at a whopping $2.05 trillion. This would make it a larger market than Italy — the 8th largest GDP nation globally. 

As of January 2022, over 8,000 cryptocurrencies and over 4.7 million non-fungible tokens (NFTs) were on record. There is also a significant trading volume for cryptocurrency. Seventy-nine percent of the world’s global trading comes from the top 10 cryptocurrencies. A total of over $91.5 billion in cryptocurrency is transacted daily across 455 exchanges, 154 counties, and 120 million Bitcoin transactions.

If you have invested heavily in cryptocurrency, you’re likely looking for a way to insure your assets. Read on to understand how your cryptocurrency could get lost or stolen, along with ways to insure your cryptocurrency and crypto-assets.

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How does cryptocurrency get lost?

While cryptocurrency is designed to be secure, it is still relatively easy to get lost or stolen. If you think that it will only happen to those that lack preparation and security precautions, think again. In 2022, it is projected that more than 1,500 bitcoins will be lost every day. 

Some of the ways that cryptocurrency is lost or stolen may surprise you. Missing private keys are a signficant culprit — 20% of Bitcoin is stranded due to lost wallets. Drops in the cryptocurrency market also factor in here in a big way. Americans lost $1.7 billion in the cryptocurrency markets in 2018 alone. Crashes and corruption are also major factors as roughly 1 in every 1,500 files will get corrupted.

You Should Be Worried About Cryptocurrency Theft

Illicit acquisition of cryptocurrency is at an all-time high. Two years ago, cryptocurrency theft reached a $7.8 billion valuation and almost doubled to $14 billion by the following year. The amount is shocking and will likely grow as more people own cryptocurrency and NFTs. 

What makes cryptocurrency theft tricky is that there are many ways the theft can occur. Phishing uses social engineering via emails, texts, and other messages to gain access. In this method alone, $115 million has been stolen. 

Exploitation is another attack vector that seeks to use ransomware, blackmail, and fraud, which has stolen $103 million. Hacking, defined as breaking into systems, software, and cryptocurrency wallets, has stolen $7.4 million. But by far, the method that has stolen the most is the use of Ponzi schemes — collecting an impressive $2+ billion. This fraudulent method pays investors the profits of other investors’ money.

Biggest Cryptocurrency Mega Losses

There have been several massive individual and institutional losses of cryptocurrency and NFTs on record. Every day, more than $10 million in cryptocurrency is lost. While the losses can scatter across many individuals and not amount to much for some, others have a very different story and have lost a great deal. 

In 2018, Chris Larsen invested in XRP and lost $44 billion. One of the former largest houses of Bitcoin, Mt. Gox, had invested in BTC and had lost $2 billion in 2013. More recently, Maxnaut invested in NFTs and has now lost $297,000 as of 2021.

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Why are people worried about cryptocurrency?

As it turns out, only 50% of Americans believe that cryptocurrency is stable to invest in — not a huge reassurance of confidence. According to Charlie Brooks of Crypto Asset Recovery: “To your average retail investor, the crypto and DeFi world is full of opportunities but fraught in insecurity by the lack of a safety net in the way of a centralized entity controlling their login details and securing their assets.” 

Also, according to Trevor Maynard of Lloyd’s: “As more money flows into the crypto asset market, losses from hacks are on the rise. Nevertheless, cryptocurrency companies have found ways to protect their digital assets from theft.”

How does cryptocurrency insurance work?

With the likelihood of losses in owning cryptocurrency given its inherent volatility, the cryptocurrency insurance industry is growing rapidly and has already reached over the $3 billion mark. Cryptocurrency insurance works for the following items: exchanges, mining, custodial, payment processing, wallets, infrastructure, and financial service platforms.

It provides insurance for businesses but not for personal wallets. With flexible limits, it ensures portions of your cryptocurrency investment and protects against theft, scams, and general losses. For businesses, cryptocurrency insurance can extend your business insurance protection.

How to Insure Cryptocurrency & NFTs

The best way to insure your cryptocurrency or NFT is to begin as you would with any type of insurance. Start by looking for providers and collecting quotes. Once you have this information in hand, compare the different insurance premiums for each quote. 

Lastly, choose your needed umbrella insurance types such as fraud insurance, exchange insurance, business cryptocurrency insurance, mining, custody insurance, and DeFi insurance. After evaluating your cryptocurrency situation needs, you should have enough information to make an informed decision in the right direction.

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So, is cryptocurrency insurance worth it?

In the end, it’s best to do your research and shop for cryptocurrency insurance rates before you take the plunge. The good news is that it’s possible to find insurance for your cryptocurrency and NFTs. Given how volatile the cryptocurrency market is, it’s imperative to give yourself some peace of mind by carefully protecting your cryptocurrency assets from external threats, scams, software and hardware failure, and hacking attempts.

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