Hunton Insurance Recovery Blog

In the 18^th Century, underwriting desks at what came to be known as Lloyd’s of London were developed to share or transfer risks associated with shipping.^[1] Availability of risk sharing, or insurance, provided protection for maritime investors and facilitated increased levels of investment and thus increased levels of maritime activity. Risk transfer has become an essential part of the development of a marketplace for many products. 

In the early years of cryptocurrency, there were no insurance products specifically designed to cover cryptocurrency-related losses. Much like the presence of insurance fosters development of a marketplace, the absence of insurance hinders it.

In the early years of cryptocurrency, there were no crypto-specific insurance coverages. Instead, policyholders sustaining losses were left to try to access coverage under traditional insurance policies such as:

Who can incur losses associated with cryptocurrency or digital assets? The real question is who uses them. 

Among the most obvious users would be exchanges in which cryptocurrency is traded. It has been reported that the largest insurance market in the cryptocurrency industry consists of exchanges that insure against thefts from cryptocurrency hackers. Among the more prominent exchanges are Coinbase, Crypto.com and Gemini. Similarly obvious are the third-party custodians that store cryptocurrency and other forms of digital assets on consumers behalf such as BNY Mellon Crypto Currency or Fidelity Digital Assets. They provide safekeeping of digital assets including keys and ensure accessibility. 

Crypto markets are experiencing the greatest crash in their history to date. The value of a Bitcoin (BTC) has plummeted 70% from its peak and Ethereum (ETH) has fallen 77%. Since last November, the value of cryptocurrency tokens has lost $2 billion in value.^[1] As noted financial publication Barron’s put it: “Crypto is having a ‘Lehman moment,’ a shattering of confidence triggered by plunging asset prices, liquidity freezing up, and billions of dollars wiped out in a few scary weeks.”^[2] Cryptocurrency companies are halting withdrawals and transfers, platforms are seizing up, and regulators are circling.^[3]