Lack of Crypto Insurance Hinders Mainstream Adoption
A new report from Reuters published December 19, 2018, determined that the inability for Asian cryptocurrency exchanges and traders to insure themselves against cybercrimes like theft and hacking is also presenting fund managers with deep pockets to invest into the market.
Insurance Is a Necessary Prerequisite Against Cybercrimes
Since investors with more capital are usually seen in more regulated environments, the ability for these investors to purchase insurance is like an unspoken rule that needs to be abided by if cryptocurrency is to see them enter the market.
Many investors only pay attention to the negative news surrounding Bitcoin, and a way to soothe fears about funds being lost or stolen with insurance is needed.
With over $800 million lost in just the first half of this year alone according to a report from financial research firm Autonomous NEXT.
Henri Arslaning, PwC fintech & crypto leader for Asia, said that:
“Most institutionally minded crypto firms want to buy proper insurance, and in many cases, getting adequate insurance coverage is a regulatory or legal requirement.”
So even for the more risk tolerant accredited investors that are willing to step into cryptocurrency, they may be unable to not because of legal restrictions.
Insurance Useful for Safekeeping as Well
Insurance is not only useful for helping manage the risks of theft or external loss of funds but also custody of the assets as well. Since cryptocurrency allows for so many storage options, such as cold storage, hot storage, hardware devices, multi-sig, etc., it can become overwhelming.
The feature of just remembering a single string of digits and letters (often known as a seed) means that it’s typically very convenient to keep a large number of funds safe since you’re only really needed to guard one thing.
However, if that seed is incorrectly remembered, or forgotten entirely, there’s virtually no chance of recovering those funds.
While some companies have begun to offer both crypto-related insurance as well as custody services, none so far have been able to provide coverage of significant size for a large institution. Some new solutions are being introduced to the market which should be the end of this problem.
Once an effective insurance/custody service is available that can handle even the largest of institutions, we should expect to see an influx of new investors despite the bear market.
Existing institutions already in the sector would be able to take advantage of the same new services, as they’re likely going to have new customers as well.
Even though one of the driving ideals of cryptocurrency is the ability “to be your bank,” having the option to share that burden will help attract a lot more people.