In a blog post that was emailed to users on Wednesday, leading U.S. cryptocurrency exchange Gemini announced it had secured insurance for the digital assets held in online hot wallets on the exchange.
According to the news release, the digital asset insurance was secured “through a global consortium of industry-leading insurers and arranged by Aon, a global professional services firm providing a broad range of risk, retirement and health solutions.” The release goes on to explain that “Gemini was approved for coverage after successfully demonstrating to underwriters that the company is a leading, best-in-class exchange and custodian.”
Previously, only fiat currency held with Gemini was covered under insurance. According to the security page on Gemini’s website, “All customer USD fiat funds are held in an omnibus account at an FDIC-insured bank located in the US” and “All customer USD fiat funds are eligible for FDIC insurance, subject to applicable limitations.” This specific type of insurance is FDIC (Federal Deposit Insurance Corporation) “pass through” insurance, called as such because the insurance “passes through” the holder of the funds (Gemini) to the customer, who is the owner of the funds. If a customer’s U.S. dollars were stolen or mishandled, they would be eligible for up to $250,000 in deposit insurance.
Rolling out digital asset insurance coverage not only instills confidence in everyday crypto retail traders that their coins are safe, but potentially marks a watershed moment in the space at large. In the blog post, Gemini Head of Risk Yusuf Hussain writes:
“To date, insurers have been hesitant to insure the crypto industry due to a large number of high-profile hacks that have resulted in catastrophic losses over the years, and the poor security standards, internal controls, and policies and procedures that have unfortunately characterized much of our industry. As a result, many crypto exchanges and custodians have been either (i) unable to obtain insurance or (ii) shied away from it due to the high cost of premiums required by the few insurers willing to insure the industry.”
Taking the leap to insure cryptoassets may create a new standard that other exchanges hoping to compete with Gemini will be forced to take. Many believe this sort of legitimization of the crypto industry is necessary to move adoption forward and, as many investors hope, allow for institutional money to move into the space. Indeed, Gemini has historically been at the forefront of bringing Wall Street products and security into crypto, from launching the first Bitcoin futures contract to attempting (unsuccessfully to date) to create a Bitcoin ETF.
No matter the broader impact the announcement will have on the cryptosphere, digital asset insurance will allow crypto investors of all types to rest a bit easier, and not rush to transfer their coins into cold storage, as has become the norm (or at least the standard advice given to new investors).