But why is this type of currency riskier? Firstly, because these currencies are particularly volatile and there is a high level of speculation in the market where they operate. This means that the people who invest in them can potentially make a lot of money, but they can also lose all the money they have invested very quickly.
On the other hand, since it is still an incipient market, there is little regulation leading to a lack of protection. For example, banking legislation does not protect either individuals who have their money in cryptocurrencies or the issuers of virtual currencies. Who, moreover, are not always known.
As they are the fruit of technology, these assets are constantly exposed to cyber attacks. A good example is what happened in 2019 to Binance, one of the leading cryptocurrency banks. This organization was the victim of a massive theft valued at $40 million due to a flaw in its security protocol. Moreover, at the domestic level, it should be remembered that most investors have only average computer literacy, increasing the risk considerably.
For all these reasons, many insurance companies have launched products aimed at cryptoasset investors that cover the loss, theft or hacking of cryptocurrency assets and valuable data, as well as cover in cases of token/coin holder data or customer data that is lost due to negligence, hacking, malware, cyber breaches, and so forth.
New European framework
There is also a Draft Regulation from the European Parliament and the Council on cryptoasset markets that requires cryptocurrency providers to always hold insured economic amounts, either through their own funds or an insurance policy covering the territories within the EU in which their services are provided.
It is expected that from 2024 onwards, these providers will have to offer these policies with an initial duration that cannot be less than one year; they will also have to offer cover against risks such as loss of documents, false or misleading statements, losses arising from business interruptions or system failures, and where applicable to the business model, gross negligence in the protection of cryptoassets and customer funds.
The aim is to attract new customers to this form of investment and to try and regain the trust of those who have dismissed cryptoassets as a good form of savings and investment.