Crypto Industry In Russia Struggles To Insure Themselves, Pushing Away Potentially Big Investors

Institutional investors are often most likely to invest in a venture that isn’t a significant risk for theft, as any smart investor would do. To protect an exchange or trader against these situations, insurance is the best option, but the local platforms in Asia are having a difficult time with insuring themselves. According to a recent report from Reuters today, this appears to be the biggest factor that those entities believe is keeping them from investments of large fund managers, despite support from regulators.

By gaining insurance, crypto industry players would be able to protect digital assets from thefts, with a plan to fall back on in the event of a hacking. PwC fintech and crypto leader Henri Arslanian commented,

“Most institutionally minded crypto firms want to buy proper insurance, and in many cases, getting adequate insurance coverage is a regulatory or legal requirement. However, getting such coverage is almost impossible, despite their best efforts.”

A recent survey from Greenwich Associates revealed that about 72% of institutional investors, based on the group questioned, see a future with crypto in it. The chief economic adviser for Allianz, Mohamed El-Erian, commented last month that the key to gaining the desired mainstream acceptance is for institutional investors to get involved, but that concept seems to be delayed.

Regulatory uncertainty and anxiety over the current infrastructure for both trading and storing are some major factors as to why this group hasn’t gotten as invested. However, the fact that multiple hacks have managed to steal funds and the way that the market has lost so much this year are clear catalysts as well.

A senior lawyer for Ashurst’s digital economy practice commented,

“Institutional investors who are interested in investing in crypto will have various requirements, including reliable custody and risk management arrangements. Insufficient insurance coverage, particularly in a volatile industry such as crypto, will be a significant impediment to greater ‘institutionalization’ of crypto investments.”

Having insurance may help with some of the issues around cyber security for both regulators and institutional investors. Keeping a wallet secure involves a 64-character private key that includes both numbers and letters, but the wallet itself can be stored online, leaving it open to being hacked. In the first half of 2018 alone, the thefts amounted to over $800 million. There are some institutions looking to correct this issue themselves, but the majority of the responsibility falls back on the crypto platforms.

Even though the industry says that they can’t seem to get coverage, there are insurers that offer it. There have been multiple companies applying this year, according to the regional director at Aon’s Asia-based financial group.

Thomas Cain, the director, said,

“It is not difficult to insure companies that hold large amounts of crypto assets, but given the newness of the asset class and the publicity some of the crypto breaches have received, applicants need to make an effort to distinguish themselves.”

The managing director for investments at Kenetic Capital, Tony Gravanis, chimed in as well, saying,

“This year there have been a number of developments, and some providers have developed custody solutions suitable for institutional clients’ needs. Players at the top end of the market have also been able to get insurance.”

Ultimately, not everyone is able to get insurance, contrary to these claims. An unnamed broker, who had his identity protected by Reuters in their original report, said,

“We’ve not yet found an insurer who will offer coverage of a meaningful enough size to make it worthwhile.”

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