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Crypto Insurance is interesting, but first lets cover regular insurance. Insurance is a useful tool in many aspects of life as it covers damage inflicted by unpredictable events. There are very sound reasons to carry health insurance and car insurance. Life insurance makes a lot of sense if you have a family that depends on you. But how about crypto insurance? You heard right, you can pay someone for a policy that may or may not cover sudden losses in your crypto account.
Insurance is a strange product if we think about it. It is something we pay for every month and hope to never use. But perhaps what we are buying is peace of mind, which can be priceless. Take health insurance for example. A major health scare could wipe out decades of saving and investing accounts. Best to pay that monthly premium just in case. But is there a strong case for crypto insurance?
Hackers Playground and Lost Wallets
There are now countless stories of hackers running off with millions in crypto. I personally lost some crypto due to a hack. Of course there is also the option of keeping your crypto on a hardware wallet with a very long password. There is the famous case of the guy in England that threw his Bitcoin wallet into the trash and it ended up in a giant local landfill. I bet he wishes he had crypto insurance!
Crypto is currently a highly volatile and risk-on asset. I currently view it as a unique and interesting alternative investment. Given its history of volatility and unpredictability, I do not think I will ever really feel comfortable putting really large sums into crypto. And this is coming from a guy that truly tries to understand and give crypto a chance.
All Investing Has Risk
All investing and human action have the risk of things going wrong. This is a big reason I believe so much in strategic diversification of assets. Anyone who says they know everything and what a particular asset will or won’t do is fooling the world, themselves or both.
My current thinking is that crypto is not appropriate for insurance. If we are buying crypto insurance, then why not insure our 401k, our pension, brokerage accounts, gold, etc? Perhaps people are confusing risk management by strategic diversification with insurance? Insurance is a product to spread the cost of rare event among large groups of people so that each person pays a little instead of a few people paying a life changing amount. Is this really appropriate for crypto?
Crypto Needs to Get Its Act Together
I wrote recently about how I thought crypto failed some of its first big tests, namely inflation. Bitcoin in particular should have risen in an inflationary environment but it didn’t.
Strategic Diversification and Risk Management
All of investing and life is a kind of risk management practice. But I believe there is an appropriate place for insurance tools and an appropriate place for strategic diversification. I do not trust anything to be for certain and that even goes for 401ks, rental properties, pensions, social security. If you live long enough you will see all these types of “certain” things face troubles. BUT, I am nowhere near a place to trust crypto in a way that I would have life changing amounts of wealth tied up in them. For me, that is a basic reason why I will not currently buy insurance on these assets.
Is a Crypto Wallet Safe?
FTX, Celsius, Three Arrows, Voyager, BlockFi… who’s next?
Jerry recently described why he moved some of his crypto to a hardware wallet.
Crypto.com has been pretty good to me for the past year however, they have
- Lowered the staking rates they pay back for the average account holder
- Their CRO has not done any better than Bitcoin (my crypto bellwether)
- They are going to remove both free Spotify and Netflix by the end of the year (Spotify still free, lets see how long that lasts).
- They are limiting how much cash back rewards you can get from their credit card
- They are adding fees to load up their card from a bank
I am digging the Ledger Nano which keeps my crypto in my hands on a hardware device. Maybe the premium one pays for a hardware wallet is the crypto insurance. But be sure to buy a good wallet from a reliable source.