As Bitcoin’s price vacillates between a high of $20,000 and the current figure of $11,063, the most widely known cryptocurrency is not alone in the digital asset universe, nor is it alone in needing better risk management and risk transfer solutions. Indeed, Bitcoin is one of more than 1,500 cryptocurrencies, whose uses range from utility tokens attached to underlying technologies and firms the way stocks are tethered to listed companies, or digital fiat currencies backed by more traditional issuers, such as central banks. Across the entire asset class, however, the lack of universally acceptable insurance solutions continues to plague confidence among weary investors and operators. This lack of confidence often relegates cryptocurrencies to speculators, who themselves face a growing number of risks, often seeing up to $534 million in mysterious disappearances or massive crypto-heists, as was the case with Coincheck’s NEM coin.
Contrary to crypto-sceptics, cryptocurrencies and in particular the distributed ledger that underpins them, Blockchain, fight against opacity, friction and middlemen. These same three attributes largely dictate how the banking and insurance industries operate, generate profits and establish their risk tolerance – or lack thereof, which explains the slow embrace of digital transformation among these traditional sectors. While all signs indicate that banking (particularly high volume undifferentiated processes, such as settlements or remittances) will face a wave of profound disruptions courtesy of Blockchain and cryptocurrencies, insurance and this new asset class can coalesce into a symbiotic relationship. Insurance and these technologies can enhance each other rather than erode value and trust – the new thrift of the digital economy. If an economy is an engine, capital is the fuel and insurance is the spark that can ignite new growth and risk taking.