Bitcoin and Insurance – Cover Your Virtual Wallet

Bitcoin is the world’s most famous virtual currency. It is an unregulated means of conducting transactions on and offline. Whilst much of the press attention regarding Bitcoin has been focused on the ability to conduct criminal dealings in a hard-to-trace manner; there has been a growing interest in the currency from more legitimate users too. The recent global financial crisis left a lot of people with an inherent distrust of “fiat currencies” like the dollar or sterling. Bitcoin offers those people an alternative.

Why Has Bitcoin Become Popular?

In essence Bitcoin makes it easy, very easy to send money to someone else online and it’s cheaper than PayPal. It’s also much cheaper than international money transfer services like Western Union etc.

Then there’s the fact that it makes it easy to transact anonymously. Not everyone wants their “dirty magazines” on their credit card statement. Many people prefer to work anonymously online – not just criminals.

Then there’s the speculative side of things. A $1,000 holding of Bitcoin purchased at the currency’s inception would have made over $1 million if sold at the market high.

Bitcoin and the Law

It would be fair to say that Bitcoin has been treated with a fair amount of hostility by national governments. Supporters would say that this is because Bitcoin poses a threat to currency valuations and detractors would say that this is because Bitcoin makes facilitating crime too easy.

Several governments around the world (including China) have categorically announced that Bitcoin will not be recognized by the state and that people dabble at entirely their own risk in the virtual currency pool. However, despite the unease of major powers Bitcoin trading is legal.

Bitcoin and Volatility

As you can see from the graph below; Bitcoins can gain and lose value dramatically in very short periods of time. Trading in the virtual currency can seem to be a huge gamble because conversion (into other currencies) can be very risky. It might be that 1 Bitcoin is worth $1,000 at the time of your transaction and within hours 1 Bitcoin is only worth $100 or vice-versa.

Bitcoin Value Chart

[Graph taken from Bitcoin website – Released under Creative Commons License]

Bitcoin and Insurance

Between the uncertain regulatory environment and the massive volatility in the currency it’s perhaps unsurprising that insurers have been reluctant to get involved with the risks of insuring Bitcoin transactions.

Earlier on this year, Eliptic Vault, an online Bitcoin repository (a place where owners of Bitcoins can store their coins until they wish to use them) announced that it would be the first fully insured Bitcoin vault. Their insurance deal was with Lloyds of London. The insurance would cover users of the vault against the loss or theft of their virtual currency. Unfortunately for Eliptic Vault the ink was barely dry on the deal when Lloyds pulled out of it – the speculation is that they didn’t like the publicity associated with the deal. Eliptic Vault found a new insurer in CBC insurance and their customers remained protected.

Since then other Bitcoin vaults have been able to insure their deposits too – in particular Circle and Xapo have announced similar deals.

However, until recently these policies have been very much limited to protecting online vaults and there’s been no protection for businesses or individuals during Bitcoin transactions.

Bitcoin and Insurance – Covering Your Virtual Wallet

On June the 2nd, 2014 that changed. The Great American Insurance Group an A rated US insurer with a $5 billion valuation – announced that it would be offering virtual currency insurance. The company will make the policies available through its Fidelity/Crime division.

This has been received by the virtual currency community as a very positive step. It’s likely to bring greater support for the currency from “real world legitimate business” and individuals alike.

It will be interesting to see if the rest of the insurance sector now decides to come on board with additional Bitcoin protection or whether the combined risks of the regulatory environment and the intense volatility of the currency is still too much for other insurers.

Other Virtual Currencies

Bitcoin is the best known virtual currency. It’s worth noting that at this moment in time there are many other virtual currencies being launched including Darkcoin, Litecoin, Namecoin, Peercoin, Ripple,and Dogecoin. You can find out more about these currencies at the Crypto-Currency Market Capitalizations site. As yet, none of these currencies has gained as much of a foothold in the market and none of them are protected by insurance. It’s perhaps too early to tell if these offer lower/greater levels of risk to insurers. However, it’s certain that there is a market opportunity for courageous insurers and one that is only likely to grow over the coming years.


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