The Evolving Landscape of Cryptocurrency Insurance
The FDIC’s recent decision to rescind FIL-16-2022 in March has paved the way for FDIC-supervised institutions to engage in cryptocurrency activities without prior approval. However, this expansion also brings new risks, as cryptocurrency operates in a decentralized system where security and insurance coverage can be complicated.
The cryptocurrency market is a frequent target for cybercrime. According to TRM Labs, the U.S. saw a 17 percent increase in crypto-related hacks in 2024, leading to nearly $800 million in stolen assets. Determining the monetary value of cryptocurrency loss is challenging due to its volatility. Insurance companies are hesitant to offer coverage due to the lack of regulation and extreme price fluctuations.
“A dollar is always worth a dollar, but cryptocurrency’s value fluctuates dramatically,” says Sean C. Griffin, an attorney specializing in cyber insurance. To address this, some policies offer “agreed value” limits, where the carrier and insured pre-determine the payment amount in case of total loss.
Key Risks and Coverage Considerations
When considering cryptocurrency insurance, look for coverage that addresses:
- Theft or loss due to employee or third-party fraud
- Loss of private keys through hacking or accidental destruction
- Financial protection for both hot and cold wallets
- Cyberattack protection, including malware and ransomware incidents
- Physical damage to devices storing private keys
Most existing cryptocurrency insurance policies are designed for institutions, such as exchanges, rather than individual investors. However, emerging options for individual crypto holders include specie insurance, standalone crypto policies, and excess and surplus lines coverage.
Limitations of Traditional Insurance Policies
Standard homeowners insurance policies typically limit coverage for money and securities to $300 per loss. Commercial crime insurance policies also don’t cover cryptocurrency exposures as they’re designed for physical property like cash and precious metals. Cyber insurance may cover expenses related to online risks but rarely covers the actual loss or transfer of funds.
The Bottom Line
As cryptocurrency becomes more mainstream, the need for insurance coverage grows. However, the industry’s decentralization makes it complex to insure. While specialized cryptocurrency insurance policies are emerging, they are often expensive and don’t cover market losses. Proactive security measures, such as cold storage and two-factor authentication, remain the best protection for digital assets.
