A major obstacle in mainstream adoption for cryptocurrency is the difficulty in exchanges and traders being able to get the proper insurance.

Innovative new technology comes with a lot of benefits. It’s exciting, new, and pushes the boundaries to new frontiers. But there is a downside in that many industries struggle to fully understand the new technology and how to deal with it. One such industry that has coping issues is insurance. Exchanges and traders in Asia are bemoaning the fact that it’s extremely difficult to get the proper insurance needed to help push crypto adoption.

Lack of Insurance Keeping Big Money Out

Bringing institutional investors into the cryptocurrency ecosystem is a major goal of exchanges and traders. The hope is that the infusion of large amounts of capital will have a bullish effect on the marketplace, as well as increasing the legitimacy and adoption of virtual currencies.

However, Asian traders and exchanges are saying that the inability for them to buy insurance is keeping such investors, like hedge fund managers, from buying into the marketplace. They believe that being able to easily get insurance will show that the security issues from hacking have been effectively dealt with. (In the first half of 2018, $800 million was stolen from exchanges.)

However, getting said insurance is easier said than done. Henri Arslanian, PwC fintech & crypto leader for Asia, notes:

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.

Hoi Tak Leung, a senior lawyer in Ashurst’s digital economy practice, adds:

Institutional investors who are interested in investing in crypto will have various requirements, including reliable custody and risk management arrangements. Insufficient insurance coverage, particularly in a volatile industry such as crypto, will be a significant impediment to greater ‘institutionalization’ of crypto investments.

The Need for Secure Custody

Insurance companies are balking at several facets of the crypto space. For starters, the ongoing regulatory uncertainty is keeping them away. Another is concern over security. Firms offering crypto custody services have to show insurance companies that said concerns have been addressed.

Tony Gravanis of Kenetic Capital says that the marketplace is making strides in this regard, saying:

This year there have been a number of developments, and some providers have developed custody solutions suitable for institutional clients’ needs. Players at the top end of the market have also been able to get insurance.

Thomas Cain of Aon adds that exchanges and traders need to put forward the effort to allay the fears of insurers, stating:

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.

While the current path is still bumpy, things should eventually ease up a good deal. As more governments come to terms on how best to regulate the cryptocurrency industry, insurers will feel far more comfortable in providing their services.

What do you think about the difficulty in finding willing insurers? Let us know in the comments below.

Images courtesy of Pixabay.