Where there are assets, there’s insurance, and that’s becoming increasingly true in crypto by JeffKauflin
Coalition, a two-year-old San Francisco cybersecurity insurance startup, already has more than 500 cryptocurrency companies as clients, including exchanges, firms that created their own digital currencies and digital-asset hedge funds. Coalition cofounder and CEO Joshua Motta is a former C.I.A. analyst who also cofounded Cloudflare, an internet software and security company that’s aiming to go public at a $3.5 billion valuation in the coming weeks.
Cryptocurrency exchanges and custodians—the venues where you can buy, sell and store assets—are hackers’ top targets, because they collectively hold billions of dollars in crypto. They face a unique challenge, because they need to let customers move their assets quickly while also storing them safely. Even Binance, the largest crypto exchange that has historically had a reputation for strong security, fell victim to a $40 million theft earlier this year.
Two years ago, the market for crypto insurance was “nonexistent,” Coalition CEO Motta says. Today he thinks it’s worth between $200 million and $500 million in premium revenue. Motta expects the market for crypto insurance to grow faster than the 20% to 25% pace at which the larger cybersecurity insurance sector is currently expanding.
The market would likely grow even faster if U.S. regulators provided more clarity on questions like which digital assets will be deemed securities and are bound by the same laws that govern public companies. The patchwork of state-by-state regulations in insurance also creates a speed bump. “Regulation has to catch up,” says Eric Boyum, head of Aon’s technology insurance brokerage arm. More regulatory clarity would increase insurers’ comfort with underwriting policies and taking new risks.
With $300 billion in crypto assets on the planet and less than $1 billion in available insurance coverage, there’s a huge imbalance between supply and demand. Ty Sagalow, a 36-year insurance industry veteran and former AIG executive who is currently chief insurance officer at crypto insurance startup BlockRe, has lofty expectations. “I see this market as the next cyber,” he says. “It will grow to a multibillion-dollar premium market within the next five to ten years.
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