Trends in cryptocurrency insurance

March 28, 2023

With the onset of the COVID-19 pandemic in 2019, the world had to grapple with both a public health and economic catastrophe. Therefore, it doesn’t seem coincidental that through the surge in remote employment, unemployment rates rising, and the reliance on technology (e.g., smartphones to accomplish ordinary tasks like ordering groceries), that new developments like cryptocurrency also would see tremendous growth.

Of course, given the unstable marketplace, it’s also not surprising that cryptocurrency-based crime reached unparalleled heights in 2021. The 2022 Chainalysis Crypto Crime Report revealed that total cryptocurrency transactions amounted to $15.8 trillion by 2021. What seems to have occurred is that cryptocurrency became an avenue for illicit and unregulated transactions to take place, but that the overall crypto marketplace has managed to defend itself through various federal and state protective measures.

Used for good

It appears that the once-explosive illicit activity surrounding cryptocurrency has been reduced to lower amounts than ever and that legitimate use is surpassing it. Globally, cryptocurrency businesses and law enforcement agencies have had to acknowledge obvious exposures and schemes that potentially defraud investors.

For example, cryptocurrency company, PlusToken, engaged in swindling lenders out of $2.25 billion. The leaders of PlusToken have been convicted and they will serve in prison for stealing billions worth of cryptocurrency through a Ponzi scheme. In 2021, the IRS announced it had obtained $3.6 billion in cryptocurrency from non-tax investigations.

Keeping cryptocurrency secure

Because of the growing concern around illicit and criminal activity through cryptocurrency, there’s been more efforts made to ensure that investments are fully secure. The Travel Rule is one such protection. Cryptocurrency businesses are required to provide extra compliance money and show all proof of any transaction over $1,000. Additionally, the Bank Secrecy and Anti-Money Laundering Act of 2020 are federal laws that require all cryptocurrencies or substitutes of currency to a reporting and registration process.

Cryptocurrency laws do vary from state to state. For instance, in New Jersey, N.J.S.A. 17:C-2 includes virtual currency in its money transmission licensing process. Binance and Coinbase both manage New Jersey money transmitter licenses.

In New Hampshire, Gov. Chris Sununu signed an executive order creating a commission on Cryptocurrencies and Digital Assets. The commission will be tasked with reviewing and investigating the current status of the cryptocurrency industry as well as the state cryptocurrency laws and regulations across the country.

Virtual currency is handled like cash under Connecticut’s General Statutes. However, it may be required to apply for a money transmission license. This all depends on the specifics of the trading involved.

New Yorkers need to obtain a “BitLicense” for any form of crypto currency business, which includes commercial transfer, sale, purchase, or distribution of virtual currency. If a business uses fiat currency (cash) as well, it is required to hold both a BitLicense and a money transmitter license.

In Vermont, cryptocurrency is legally categorized as property instead of currency. Vermont has not addressed any of the tax issues emerging from the use of virtual and cryptocurrency.

Lack of oversight?

Celsius Network, a cryptocurrency network that filed for Chapter 11 bankruptcy in July of 2022, was working with little bureaucratic supervision before it became insolvent.

For instance, the cryptocurrency network did not even possess a money transmitter license.

Customers were swindled with the promise of high interest rates to all deposits of cryptocurrencies. By June 2022, Celsius paused all withdrawals, swaps, and transfers. Billions in cryptocurrency were affected, many of which were accounts/customers from Vermont.

Unfortunately, without the proper registration of interest accounts, Celsius customers had no idea of the actual financial status for the company, which has led to a multistate investigation. On March 22, 2023, the court ruled that the majority of its customers’ deposited crypto could be returned to them (up to 72.5%).

Cryptocurrency and insurance

Requests for crypto risk coverages have increased and having crypto insurance acts as a real market determinator. It further solidifies crypto credibility.

Last year, there was a big swell in crypto insurance purchases. Typically, coverage premiums are twice the cost of non-crypto policies.

Maura Rosner
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Maura worked as a reporter for the Daily Mail. She received her English, B.A., from Brooklyn College. Maura is also a photographer who believes that there is power in every image.

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