- INVESTMENT IDEAS
Peace of Mind is Priceless, but Luckily Insurance is Cheap
- Insurance is often overlooked as an unnecessary expense, however, the peace of mind associated with knowing your assets are protected is priceless.
- As cryptocurrency becomes increasingly mainstream, individuals with malicious intent will be drawn to steal your assets; so it is of the utmost importance that your appreciating assets are shielded from harm.
- While the typical, yearly insurance premiums of ~3% barely detract from net profitability during a bull market, they can be burdensome during a bear market.
- The minuscule cost of preventing collateral loss appeals to the mandate of capital preservation and is always a valuable expenditure to limit downside risk.
Hackers are inherently drawn to the prospect of extracting wealth from right under your fingertips and cryptocurrency is no exception to that rule. Fortunately, there are various platforms available that allow you to safeguard your valuable resources for an inexpensive fee.
Nexus Mutual, InsurAce, Armor.Fi, Bridge Mutual and inSure are among the various platforms that offer insurance. Ultimately, which platform is utilised depends on personal preferences, however, the central concerns should include the situations in which your assets are protected against and the ease at which funds are returned upon a submitted claim.
The majority of claims fall under the categories of scams, devaluation, and stolen funds due to the exploitation of smart-contract vulnerabilities. Examples of scams can include being a victim to social engineering. This happens when someone is solicited, via e-mail, to deposit funds into a centralised exchange that locks your assets and is unresponsive to withdrawal/retrieval requests. Devaluation is generally triggered as an insurable occurrence upon an immediate loss of 90%, or more, from the cost basis. Stolen funds are self-explanatory and can occur due to a compromised hot wallet, whether it be independently managed or maintained by a centralised exchange that was hacked.
As a savvy investor, it’s crucial to have a thorough understanding of the aforementioned situations to determine which instances to purchase coverage for and whether your claims will be considered valid. In addition, it’s crucial to analyse the appropriate coverage to purchase and, subsequently, the premium paid for that coverage. For example, it may not make sense to incur added expense to protect a nominally small position. Especially, if that protection does not extend to the entirety of your cryptocurrency purchase.
Unfortunately, no insurance platform can guarantee the return of your capital after a systemic event, like a widespread hack that affects the majority of cryptocurrency holders. This would result in a “run on the banks”, or a flood of investors submitting claims, that would ultimately be rejected due to a lack of available monies collected from insurance premiums. In a similar fashion, if the market capitalisation of the insurance platform suddenly plummeted, that would serve as another catastrophe, essentially ensuring that there would be no allocation of monies available for those who submitted claims.
While decentralisation is the core tenet of cryptocurrency, it is a potential detriment to those seeking fulfillment of a submitted insurance claim. If the decision to reimburse an investor’s funds is delegated to the public, more specifically, those who hold governance tokens, then there is a possibility that the results of the poll prove unfavourable to the investor. There are a few instances in which centralised authority is a benefit to society and this seems to be one of those occasions.
Nothing in this article constitutes professional and/or financial advice. The content is provided exclusively for informational and/or educational purposes. Nothing is to be construed as an offer or a recommendation to buy or sell any type of asset. Seek independent professional advice in regards to financial, tax, legal and other matters.