Institutional Investor Input Into The Crypto Market Needs Insurance Coverage As Next Roadblock To Overcome
Is The Lack Of Insurance Preventing Institutions From Going Crypto?
By now, everyone should know that cryptocurrencies are not associated with banks, at least when it comes to most cryptos. This is one of the most attractive aspects of the crypto space, since coin owners have complete control over their own finances, and no one can take that away from them, including banks and governments. This is also a great advantage for those who are unbanked, or even underbanked, as it is estimated that at least a quarter of the world's population suffers from these issues.
While these are typically considered to be positive aspects of the crypto industry, this independence does come at a price. For example, when we say that users are responsible for their coins, that means that users are responsible for their tokens' safety and security as well, not just for what they do with their funds.
As a result, losing access to their wallets means that users will permanently lose all of their funds. A recent incident when Canadian crypto exchange QuadrigaCX lost access to their own wallets is a good example of this. The incident resulted in over 115,000 users losing access to their own money, which was stored within the exchange.
This is not the last of such issues, however, as the last two years became known for a number of large-scale hacking attacks on exchanges, which once again resulted in total losses of around $600 billion.
In light of these problems, a possible solution may have started to emerge in the form of crypto-insurance. The insurance will supposedly be able to cover exchanges and companies, but also individual investors and traders. Many have also taken this development as a sign of cryptos making another step towards ‘legitimacy,' as it will undoubtedly become more reliable if users can be insured.
Others, however, such as Alena Vranova, the founder of Trezor, and the company's current head of strategy, believes that crypto insurance might not cover as many situations as investors may believe, For example, it might be difficult to prove that the insurance claim is valid due to the nature of cryptos, or the way they were used. There are also other loopholes in the insurance policies that investors need to be wary of in order to ensure that insurance companies will not simply refuse to fulfill their duties.
While Vranova admits that companies will likely cover a certain amount, they are also very likely to find limitations to the coverage. Still, she believes that crypto insurance may not be completely useless and unnecessary. But, those who do decide to get it will have to be careful and read the fine print.
In addition, for most companies, it can be extremely difficult to actually obtain crypto insurance. Companies are interested in getting proper insurance, with adequate coverage, as many of them are legally required to obtain it. The fact that it is extremely difficult — if not impossible — to get it may be the reason why there is still a massive lack of institutional cash flow in the crypto space.
Institutions Would Have A Number Of Requirements
Attracting institutions to the crypto space has been a long-term goal of the industry's supporters. However, before they join, it is likely that they would have various requirements. This can include a lot of things, such as reliable custodians at their disposal, as well as arrangements for risk management. Finally, there is the matter of insurance, which is particularly important in crypto industry, which is already highly volatile.
As this issue continues to grow, a number of companies dedicated to solving the issue and offering a solution have started to emerge, with a growing number of options available. Furthermore, some of them understand that their clients require transparency, as not everyone is aware of the conditions under which their insurance is providing coverage. This is why accuracy and transparency are important in this aspect of the industry.
Even some exchanges have started providing insurance for at least a portion of their users' funds. However, in these cases as well, users should ensure that they understand the terms of the insurance.
There is another issue, which is that insurance companies sometimes hesitate to provide coverage for cryptos because crypto companies want proper insurance in the first place. These days, cryptos are still not as secure as insurance firms would want them to be, hence their concern. This may lead to exchanges having to work with numerous insurance firms at once in order to cover all of their basis.
In other words, while crypto insurance seems to be on its way, it is still approaching very slowly, while the demand is growing rapidly. There is still a long way to go until the crypto industry is secured and regulated as institutions would want it to be, but on a positive note — there is certainly proof that work is being done in order to get there.