Who deals with crypto investors?
There are two forces shaping the development of a key market within the crypto industry: insurtech (insurance + technology).
On the one hand we have huge adoption along with sadly more crime against investors and on the other hand we see that less than 1% of all investors are insured against scams and stolen funds.
This scenario makes it an attractive time to enter the crypto insurance market and target private retail investors from any safety net in the space. Thanks to the latest technology (smart contracts, access to multisignature wallets, faceID, etc.), a company could reduce the risk for investors and increase its margins, providing a win-win situation for both parties.
The crypto insurance market: present and future
This industry is expected to reach a market size of almost $40 billion by 2030, from the current valuation of around $500 million. Estimated to grow at a staggering 72.4% CAGR in just 8 years!
Just as a point of reference, consider the bitcoin market currently at $20.4 billion, which is expected to be worth around $130 billion in those same 8 years (26.2% CAGR). And that’s just bitcoin. Now add in all the other digital assets and you’ll see how crypto insurance gets even juicier.
Every transaction is a point of risk for the crypto currency investor. A higher volume of transactions means a higher probability of encountering risks. Where there is a risk, there must also be someone to help us manage this risk.
Many of these transactions may be considered low risk (eg sending funds to non-existent addresses), but some may be medium or high risk (eg scams).
We should have crypto insurance products to manage these different levels of risk, but very few companies currently offer this service.
Last year we had $15.8 trillion in transactions according to the Chainalysis Crime Report (a 5x increase from 2020). Next major adoption: consult.
We also had $14 billion going to illicit addresses from scams, stolen funds, ransomware, or any other illegal activity. Almost double the amount in 2020. More crime: check.
So we have thousands of investors at risk of being scammed or losing their funds without any insurance. Traditional markets have them (FDIC in the US, FSCS in the UK, FDGE in Spain, etc), so why not have insurance for crypto investors too?
Time to address the real needs of cryptocurrency holders
Whether this crime is coming from an unregulated market or because the industry is too young and people can’t quite grasp the technology yet, we need to address the pain of cryptocurrency investors. We need to assure them that they can trade comfortably and safely in this market.
If you are an investor in traditional markets and see this:
Will you still think about putting your money in cryptocurrencies?
If there is no safety net, then probably not. But if we had personalized insurance products, investors would be more willing to take risks.
Think of having at least two products:
- Safe for customers’ hot/cold wallets.
- Insurance against fraud and theft of funds.
The crypto insurance company must first rely on the creation of an infrastructure to reduce risks for their clients. And once the technology is in place it can help them manage their funds in a more controlled environment.
You could use among the following measures:
- Create multi-signature confirmation for large transactions and prevent transfer to illicit addresses.
- Face Id for key recovery in case of loss of the same (having previously filled out a KYC).
- A browser extension where customers are warned before logging into a suspicious site.
- Simulate attacks on your customers (for example, phishing scams) and then review them with your customers on how to improve your security measures.
There are many things you can do as a business to increase the safety of your customers and help them reduce their risk, which will translate into increased profit margins.
Brief SWOT analysis of the Spanish market
Let’s say you want to create a crypto insurance company in Spain (where I live), what is the scenario you are dealing with?
It’s a very young industry and you probably don’t have experience in this area, but maybe there are other strengths that can help you along the way.
Getting involved with the local crypto community (e.g. Crypto Plaza in Madrid) and building your network can help you understand the space and see people’s needs firsthand.
You may have experience with startups: working in multiple roles within a new company or finding resources (for example, Enisa has 3 options for startup funding). These skills can help you start a crypto insurance business faster because you already know the startup ecosystem.
You also don’t have to reinvent technology to reduce risks for your customers. There are already features you can use with a small team, such as multi-signature wallet access, designing smart contracts in the Ethereum Virtual Machine (EVM), or biometric security with facial identification, that will prove invaluable to your business.
You are not starting from scratch, remember that.
This is a very young industry, so being specialized in crypto insurance is probably not on your list of strengths. You or your team may not know how to navigate this space, but that doesn’t mean you can not learn. It may take time, but it would still be ahead of the curve given the early stage of the entire industry.
You may also have trouble finding the right equipment and not having the initial investment required. But many entrepreneurs start like this, with just an idea, a lot of passion and, most importantly, perseverance. They show up every day for months or years to work on your business idea and that will put them ahead of the curve.
What you lack in money you can make up for in time spent learning, networking, and slowly building the foundation of your business.
Do not let these weaknesses drive you to despair.
If you do not try, you’ll never know what you could have done.
Of the 37 regulated crypto companies in Spain, none is specialized in crypto insurance. Some may have basic insurance, but it is not enough for the variety of cases that investors need.
And remember, less than 1% of all cryptocurrency investors are currently insured. People are trading with high levels of risk and here you come to give them the peace of mind they have been waiting for on their digital assets.
This is what your client looks like in Spain:
- There are more than 1 million Spaniards who own crypto (or 2.5% of their population).
- The average profile of the owner of cryptocurrencies is: male, 39 years old, with a monthly salary of more than €3,000 and investing 5% of his capital (that is, from €150).
There is a market ready to be captured. Think about what you can do with a first-mover advantage before the market blows up.
The viability of this business idea can be questioned when we can see some of the threats in the crypto space.
The passage of laws against cryptocurrencies could significantly delay the use of cryptocurrencies and their adoption. People would be afraid of dealing with illegal digital assets and securing them might not be a necessity if you don’t want to transact with them in the first place.
Another important factor would be the creation of a Central Bank Digital Currency (CBDC). People would feel more comfortable dealing with a government-backed currency and see no need to get into these other digital assets.
Lastly, international crypto insurance companies could acquire a large part of the national market share and their business would find it difficult to compete in this scenario. Beware of companies like Relm Insurance, Lloyd’s, Coincover, CryptoShield, Evertas, among others.
Thousands of retail investors are at risk of millionaire scams and loss of their cryptocurrencies without any protection. Unlike traditional markets where some of their funds are insured (for example, the FDIC in the US), crypto investors do not have any kind of safety net.
This issue can easily turn into a huge business opportunity for entrepreneurs eager to find a way to break into the crypto space.
Crypto insurance could be a once-in-a-lifetime opportunity to gain market share in a nascent industry and build a strong foothold before the market blows up.
Where do you want to be when this market gets back on its feet?
This article should not be considered financial advice. It was written for educational purposes only.