While businesses and investors jump headfirst into cryptocurrency, insuring the risks involved is no simple task. Unfortunately, players in the market — whether they are banks, investors or other entities in the crypto business — are discovering that finding insurance isn’t easy.
Why is it so difficult to obtain coverage? There are several reasons:
1. Lack of data and familiarity
Cryptocurrency is new and doesn’t have a performance or actuarial track record, making it inherently difficult to assess and price risk. When insuring an asset like a home or automobile, insurers have an immense amount of historical data that predicts the likelihood of loss. But because crypto is so new, it’s nearly impossible for an insurer to predict the likelihood of a hacker breaking into someone’s private wallet and stealing crypto coins, for instance.
2. Regulatory uncertainty
The regulatory landscape is anything but settled. The U.S. Securities and Exchange Commission has proposed a comprehensive, 654-page plan aimed at regulating Treasury markets platforms, that will likely include cryptocurrency trading.1 Insurers understandably see what the crypto regulations will entail and assess their potential impact.
3. Price volatility
Cryptocurrency has been among the most volatile of assets, whether it’s the price swings of popular forms such as Bitcoin or accounting for foreign exchange ups and downs. It’s extraordinarily difficult to assess insurance pricing when there’s major swings in the price of the underlying asset.
