Insurers have steered clear of insuring crypto as it’s a volatile market – but following a recent deepfake scam, is it time to rethink this emerging risk?

In June 2024, a livestreamed YouTube video of Tesla co-founder and chief executive Elon Musk was broadcast to 100,000 viewers. It invited those that owned cryptocurrency to part with their savings in order to double their money.

Clare Ruel

Clare Ruel

Cryptocurrency is an unregulated digital only currency, such as Bitcoin. This type of currency is not currently backed by banks or governments.

Following the airing of the video, one crypto holder made a deposit after speaking to an alleged Tesla customer services representative on live chat. He was redirected to a Tesla branded webpage via a QR code, which showed a live counter of how many people had deposited cryptocurrency.

Sadly, once the cryptocurrency was deposited, the live chat was abruptly disconnected – and victims’ funds were not doubled.

Cyber security researchers uncovered that the video was in fact a Russian deepfake cryptojacking scam, which impersonated Musk.

The video used interlaced footage from an actual Tesla shareholder update and was streamed through a verified YouTube account, registered in March 2013 with a 711,000 following, to make it appear genuine.

A deepfake is a video, audio or image that has been convincingly altered or manipulated to represent someone doing or saying something that they did not.

Michael Marcotte, co-founder of US non-profit National Cyber Intelligence Center, told me that this “highly sophisticated scam” could pose an opportunity for insurers.

He said: “What this scam has highlighted is just how quickly the risk landscape is shifting as new breeds of fraud come into play.”

FCA data published in June 2023 cited that nearly 4.97 million UK adults have some form of cryptocurrency and that 20,000 cryptocurrencies were in existence from the start of 2023.

Despite the increasing uptake of cryptocurrency, very few insurance products exist to cover it. Evertas, which defined itself as ”the world’s first crypto insurance company”, insures 70% of the world’s top Bitcoin miners and aims to mitigate crypto risks. Its cover includes platform failure, theft or loss of cryptocurrency and directors’ and officers’ insurance.

Meanwhile, a group of underwriters called Atrium launched a cryptocurrency wallet protection product in March 2020 with Welsh broker Coincover.

And Lloyd’s broker Superscript launched a line slip in April 2023 to make property insurance more accessible for crypto miners.

But why are insurers so nervous about insuring crypto?

Insurer opportunity?

Created in 2009, Bitcoin was the first cryptocurrency, with a finite supply of 21 million coins.

Fast forward 14 years and crypto is still considered by the insurance industry to be an emerging risk – and, therefore, very little cover exists for this volatile marketplace.

For Marcotte, not “all crypto was created equal”.

He explained that the most stable asset classes – Bitcoin, Dogecoin and Ethereum – should not be treated as “toxic as they are extremely insurable”.

Marcotte continued: “I can see why insurers would be nervous – it’s actuarial math. Currency markets are volatile by nature. There are so many cryptocurrencies, it can be a confusing landscape. There is stable cryptocurrency tied to the world’s reserve currency – that’s Bitcoin.”

Maturing market

The cryptocurrency industry has a turnover of approximately £12.1bn, investment of £3.5bn and is growing by 22.5% per year, according to The Data City’s UK Cryptocurrency Market report, published in May 2024.

Ben Davis, Superscript’s head of digital assets, noted that the cryptocurrency market ”will mature in a similar way to the cyber market, with insurers and brokers adding additional services or offerings to attract and retain clients”. 

Davis explained that onchain platforms – where cryptocurrency transactions are conducted via blockchain – “will start looking for diversified insurance revenue streams that won’t be connected to smart contracts or slashing risk”.

This could prompt partnerships with traditional insurers to access the offchain market – moving outside blockchain – which covers unanticipated events.

Davis additionally predicted that “insurance providers in the digital asset space will embrace specific crypto niches and allow for partnership opportunities, which traditional insurance players won’t consider or believe is too costly to implement”.

Marcotte, meanwhile, believes that crypto will become “less volatile” in the medium and long-term.

For me, the crypto industry will continue growing. Therefore, both insurers and governments will need to step up and cover this emerging risk or face being left behind.

With many countries moving away from paper money and turning towards card only and digital only payments, the increased rise of cryptocurrency is inevitable.

But like any technology, innovation breeds risk – measures will need to be put in place to protect crypto holders from fraudsters. Musk’s deepfake incident serves as an education piece – and brokers will be key in spreading the word.