Despite cryptocurrency market volatility, there is demand for insurance – particularly against theft – says consultancy partner
Insurance2025: Insurance industry protection for cryptocurrency is “nascent”, according to Greg Brown, partner at Oxbow Partners.
This is despite the cryptocurrency market accelerating rapidly – it has a market value exceeding £2 trillion, an increase of more than 2000% since the beginning of 2021.
But, due to its newness and subsequent market volatility, few insurers cover cryptocurrency. Some that do include Lloyd’s syndicate Atrium, which partnered with Welsh broker Coincover to launch a liability product last March.
However, this could all change due to demand and trading skyrocketing.
Cryptocurrency is a digital currency that works as a medium of online exchange between two parties that can be done without a third party.
Brown, who was speaking to Insurance Times’s content director Saxon East as part of the title’s three-day Insurance2025 event, told online delegates that some cryptocurrencies now have “significant value” to those willing to buy and sell them, meaning the demand for insurance is there.
But, there are identified risks in owning cryptocurrency, for example theft by hacking.
Due to the way it is organised - with no third-party validation - cryptocurrency can easily be swiped and there is nothing that would indicate a previous owner.
“What happens is you end up in these situations where people are holding large values of assets and they want to insure against them, [but] there is a very nascent insurance industry around the protection of these cryptocurrencies,” he added.
“There is massive volatility in the cryptocurrency market, therefore I don’t really see anyone looking to insure against volatility in the value of the asset, but certainly against theft.”
Brown explained that people typically insure exchanges, which is usually backed by a traditional insurer.
Massachusetts Mutual Life Insurance’s entire book represents 0.04% in cryptocurrency after it invested $100m in bitcoin, a type of cryptocurrency, last December.
However, there is a finite supply of cryptocurrency that can be mined - for example, bitcoin has a threshold of 21 million.
The nature of bitcoin means that everyone has a copy of the blockchain where all the transactions are stored. Although this is out in the open, it is also fully encrypted.
Future of cryptocurrency
Brown questioned how “valuable” cryptocurrency was as its value is debateable.
Speaking about whether it could potentially be an asset class for insurers, he said: “I struggle to see it happening on a mass scale in the short-term. There’s arguments that bitcoin is becoming less volatile [based on data over the last month].”
He argued that the volatility of bitcoin would need to be looked at over the course of a year to get a more accurate picture.
He continued: “As an insurer, when you are investing, you have that volatility angle [in mind] and of course that affects insolvency ratio. You can’t just do it, maintain a solvency ratio and meet all the requirements of the regulator.
”If and when it becomes a stable currency, that’s a different conversation, but currently the volatility is too high.
”Bitcoin isn’t an asset - it’s a currency designed to be an investment. It was designed to allow trading between two parties without a third party involved.”
For this reason, Brown believes the cryptocurrency market has some way to go yet.
When asked whether cryptocurrency has a future in the financial landscape, Brown was adamant that it does, but the amount of electricity it uses per transaction must be reduced for it to be sustainable long-term.
“Fundamentally, are cryptocurrencies going to remain? Absolutely. At the moment, we are product market fit finding, we are trying to work out exactly where it is useful,” he said.
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Greg Brown: Insurers ‘nascent’ over cryptocurrency cover