Why Crypto Insurance Is the Next Gold Mine for Entrepreneurs

Who’s taking care of crypto investors?

There are two forces molding the development of a key market inside the crypto industry: insurtech (insurance + tech).

On the one hand, we have major adoption coming paired with sadly more crimes 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 moment to enter the crypto insurance market and target retail investors deprived of any safety net in the space. Thanks to the latest tech (smart contracts, multi-sig. wallet access, faceId, etc.) a business would be able to reduce the risk for investors and increase its margins delivering 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 today’s valuation of around $500 million. It’s estimated that it will grow at an astonishing 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 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 investor. A higher transaction volume means a higher chance of encountering risks. Where there’s a risk, there should also be someone helping us manage this risk.

A lot of these transactions can be considered low risk (e.g. sending funds to inexistent addresses) but some can be medium or high risk (e.g. scams).

We should have crypto insurance products to manage these different levels of risk, but very few companies are offering this service today.

Last year we had $15.8 trillion in transactions according to Chainalysis’ Crime Report (a 5x increase from 2020). Major adoption coming: check.

We also had $14 billion entering into illicit addresses coming from scams, stolen funds, ransomware, or any other illegal activities. Almost twice the amount in 2020. More crime: check.

So we have thousands of investors at risk of getting scammed or losing their funds without any insurance. Traditional markets have them (FDIC in the US, FSCS in the UK, FDGE in Spain, and so on) so why not have insurance for crypto investors as well?

It’s time to address the real needs of crypto holders

Whether this crime comes from an unregulated market or because the industry is too young and people can’t grasp the tech yet, we need to address the pain of crypto investors. We need to reassure them that they can operate comfortably and safely in this marketplace.

If you’re an investor in traditional markets and you see this:

will you still think about putting your money in crypto?

If there’s no safety net then probably not. But if we had tailored insurance products, investors will be more willing to take a risk.

Think about having at least two products:

• Insurance for customers’ cold/hot wallets.
• Insurance against scams and stolen funds.

The crypto insurance company should first rely on creating an infrastructure to reduce their customer’s risks and once the tech is in place, it can help them manage their funds in a more controlled environment.

You could use some of the following measures:

• Create a multi-signature confirmation for large transactions and avoid transfer to illicit addresses.
• Face Id for key retrieval in case of losing them (having filled a KYC previously).
• A browser extension where customers are warned before signing into a shady site.
• Simulate attacks on your customers (e.g. phishing scams) and then go over them with your clients on how to improve their security measures.

There’re many things you can do as a company to increase your customer’s safety and help them reduce their risk, which will result in an increase in your 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’s the scenario you’re dealing in?

Strengths

It’s a very young industry and probably you won’t have any 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 up your network can help you understand the space and see people’s needs firsthand.

You might have experience with startups: working on multiple roles inside a new firm or finding resources (e.g. Enisa has 3 options for startup funding). These skills can help you start a business in crypto insurance faster because you already know your way around the startup ecosystem.

You also don’t have to reinvent the technology to reduce your customer’s risks. There’re already features you can use with a small team like multi-signature wallet access, designing smart contracts on the Ethereum Virtual Machine (EVM), or biometric safety with face id, that will prove invaluable for your business.

Remember that you’re not starting from scratch.

Weaknesses

This is a very young industry so being specialized in crypto insurance is probably not on your strength list. You or your team might not know how to navigate this space, but that doesn’t mean you can’t learn. It might take time, but you’d still be ahead of the curve given the early stage of the whole industry.

You might also have problems with finding the right team and not having the initial investment required. But many entrepreneurs start like this, with just an idea, tons of passion, and most importantly consistency. They show up every day for months or years to work on their business idea and that will get them ahead of the curve.

What you lack in money you can compensate with time invested into learning, networking, and slowly building the foundations of your business.

Don’t let these weaknesses drive you to despair.

If you don’t try you’ll never know what you could’ve done.

Opportunities

Of the 37 regulated crypto companies in Spain, none specializes in crypto insurance. Some might have basic insurance, but it’s not enough for the variety of cases needed by investors.

And remember, less than 1% of all investors in cryptocurrencies are currently insured. People are operating with high levels of risk and here you come to give them the peace of mind they’ve been wanting over their digital assets.

This is what your customer looks like in Spain:

• There’re over 1 million Spaniards owning crypto (or 2,5% of its population).
• The average profile of the crypto owner is: male, 39 years old, with over a 3.000€ monthly salary, and investing 5% of their capital (so starting with 150€).

There’s a market ready to be grasped. Think about what you can achieve with a first-move advantage before the market explodes.

Threats

The viability of this business idea can be questioned when we see some of the threats in the crypto space.

Passing anti-crypto laws might significantly delay the use of crypto and its adoption. People would be afraid to deal with illegal digital assets and insuring them might not even come as a need if you don’t want to transact with them in the first place.

Another major factor would be the creation of a Central Bank Digital Currency (CBDC). People would feel more comfortable dealing with a Government backed currency and they won’t see the need to go into these other digital assets.

Lastly, international crypto insurance companies could acquire a large portion of the national market share and your business would struggle to compete in this scenario. Watch out for companies like Relm Insurance, Lloyd’s, Coincover, CryptoShield, Evertas, among others.

Final Thoughts

Thousands of retail investors are at risk of millionaire scams and losses of their cryptocurrencies without any protection. Unlike traditional markets where some of your funds are insured (e.g. FDIC in the USA), crypto investors don’t have any kind of safety net.

This issue can easily become a huge business opportunity for entrepreneurs eager to find a way into the crypto space.

Crypto insurance might be a once-in-a-lifetime opportunity to acquire market share in a nascent industry and develop a strong position before the market explodes.

Where do you want to be when this market gets on its feet?

This article should not be considered financial advice. It was written for educational purposes only.

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