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Why insurance can be a life saver for investors wealth in cryptocurrency assets

02 Jul , 2022   By : Kanchan Joshi


Why insurance can be a life saver for investors wealth in cryptocurrency assets

When you opt for deposits or loans at a bank, generally, you do have the option of taking insurance against it. Insurance acts as a protection for your money invested or borrowed. This is what the cryptocurrency markets are lacking currently, a proper insurance mechanism to protect investors' wealth. So far this year, crypto markets have witnessed some deep depressions in their performance with major digital currency assets drastically correcting to low levels, some even clocked zero grounds baffling investors. This has led to many cryptocurrency exchanges halting their withdrawals and deposits.


On Friday, the global crypto market was recovering from its previous sessions' steep declines. The market cap of global cryptocurrencies jumped 1.21% over the last day and was around $870 billion. In June, the crypto market erased its $1 trillion mark.


The crypto market's leader Bitcoin's dominance is around 42.44?low compared to 44.44% dominance two weeks ago.


Currently, Bitcoin trades at around $19,400.14 up 1.61% with a market cap of around $369.22 billion. While counterpart Ether soared 3.3% and was trading around $1,065.76 with a market cap of $129.05 billion.


However, in seven trading sessions, Bitcoin recorded a loss of more than 8% and Ether dipped nearly 12%.


The top 10 cryptocurrencies have recorded a sharp downfall in their price level in a week. Binance's (BNB) weekly drop is over 8.3%, while Cardano's weekly decline is over 9.7%, XRP shed around 13.5%, and Solana dived about 18.5%, as per CoinMarketCap data. Tether, USD Coin, Binance USD, and DogeCoin saw a slight decline in the week too.


Last month, crypto exchanges like Binance, Celsius, and CoinFlex among others halted their withdrawals and deposits to cap the outflow in crypto markets. The reason behind cryptocurrency platforms halting their withdrawals and deposits is that there is a massive decline in their liquidity.


It is almost like a common practice now, every time there is a sharp crash in cryptocurrencies, some exchanges vulnerable to the comedown halt their withdrawals.


The latest Three Arrow Capital (3AC) collapse dampened confidence in crypto markets once again after the infamous Terra tokens flash crash which wiped out hundreds of millions of investors' money. On Monday, crypto platform, Voyager issued a notice of default to 3AC of a loan amounting to $650 million.


Earlier this week, a court in the British Virgin Islands ordered the liquidation of crypto hedge fund Three Arrows Capital (3AC), after the company suffered major losses in the recent market turmoil. Recently, 3AC liquidated its positions after it failed to meet margin calls.


According to Arcane Research analysts Vetle Lunde, uncertainty related to the collapse of 3AC, corresponding defaults, and lending platform Celsius’ halting of withdrawals as they face a potential bankruptcy is leading to a vicious withdrawal cycle on other centralized lending platforms.


Further, Lunde explained that the growing withdrawals suggest that users of crypto lending platforms are getting more cautious amid the growing uncertainty in the market, leading to a bank run and a vicious feedback loop for lending platforms, which already experience massive pressure pending the unresolved 3AC contagion.


It is situations like these that make it vital for investors to have insurance against their crypto assets investment. However, in the crypto industry, insurance has not gained traction or is not widely adopted.


Vinit Khandare, CEO and Founder, MyFundBazaar pointed out that from cyber attacks to rug pulls, the cryptocurrency-sphere remains a rather exposed industry and therefore, investors are increasingly looking at ways to protect their assets from being exploited - crypto insurance.


Khandare explains that although the companies that people use to buy and store crypto are in some ways similar to banks, these platforms don’t have the deposit insurance that bank or investment accounts have. If the companies that operate these platforms were to fail, there’s no guarantee that the investor would be able to recover the value of their crypto - this lack of protection reflects the fact that regulators are still catching up to the crypto industry.


Insurance also serves as a reminder that while crypto platforms might seem secure — some are publicly traded companies — they’re operating in an industry that has almost no rules and few safety nets, the MyFundBazaar founder added.


In Khandare's opinion, regulators are still learning the art of approaching crypto - being an entirely speculative investment, it is injudicious to put the deposit insurance and government backing behind those crypto assets, every investor needs to come to a realisation that what they’re doing is not putting money in a bank, but a gamble. The mounting effort to regulate the crypto industry probably won’t be over anytime soon - all the chaos in the crypto market has more people thinking about the fate of their money. That may not be good news for crypto investors, but it’s certainly good news if they’re in the burgeoning crypto-insurance business.








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