The difficulties involved in securing insurance against cryptocurrency hacks and thefts is deterring institutional investors from putting their money in the nascent asset class, according to cryptocurrency exchanges and traders in Asia.
Per Reuters, digital assets have suffered reputational damage following a series of hacks and thefts at cryptocurrency exchanges in the past few years and this has turned off large fund managers.
But while the situation could be turned around if the sector got buy-in from insurers, obtaining coverage has proved difficult according to Henri Arslanian, the fintech and crypto leader for Asia at accounting giant PricewaterhouseCoopers:
Most institutionally minded crypto firms want to buy proper insurance, and in many cases, getting adequate insurance coverage is a regulatory or legal requirement. However, getting such coverage is almost impossible despite their best efforts.
Regulatory Requirement
Besides coverage being necessary to attract institutional investors, it might also become a requirement for licensing cryptocurrency exchanges in some jurisdictions. In its quest to regulate cryptocurrency exchanges, the Securities and Futures Commission of Hong Kong has for instance indicated that one condition that could be imposed on regulated exchanges would be to have most of the digital assets covered by insurers.
The accusations leveled by players in the cryptocurrency sector against insurers in Asia have, however, been rebuffed with some insurance firms stating that they offer covers to the industry. Obtaining these covers, though, is not a walk in the park, according to Thomas Cain, the regional director of commercial risk solutions at the Asian unit of the globe’s biggest insurance broker by revenue, Aon:
“It is not difficult to insure companies that hold large amounts of crypto assets, but given the newness of the asset class and the publicity some of the crypto breaches have received, applicants need to make an effort to distinguish themselves.”
Case Studies
One of the cryptocurrency firms that Aon recently sourced insurance for was Gemini. As CCN reportedabout two months ago, the insurance coverage was provided to the cryptocurrencies held in the custodial service of the digital asset platform founded by Cameron and Tyler Winklevoss.
At the time, the digital asset platform indicated that crypto investors were interested in getting the ‘same levels of insured protection they’re used to being afforded by traditional financial institutions’.
Over three months ago cryptocurrency custody firm Kingdom Trust, which at the time held digital assets worth approximately US$12 billion in its custody, obtained coverage via the Lloyd’s of London marketplace. While the specific insurer was not revealed, the digital asset custody firm which boasts of over 100,000 clients indicated that the move would enhance the confidence of its institutional investors.
