Insurance and cryptocurrency: Do they mix?

“Uncharted territory” – as many investors call the cryptocurrency market with its insecure exchanges, information wars, fraudulent projects and high volatility. Inadequate attention to risk management and security has already become a serious loss for users around the world.

In any civilized market, insurance has always been an important tool that offered the parties guarantees of reliability. Insurance payments allow you to receive compensation for undesirable circumstances. However, there is still no structure on the cryptocurrency market that could offer investors a “safe haven”.

Cryptocurrency Situation

The cryptocurrency market is filled with blockchain projects, many promise a return of investment of several thousand percent a few days after the ICO. But, strangely enough, a large number of projects are based on stillbirth, poorly developed ideas that cannot satisfy market demands, and sometimes are simply a hoax. A sense of quick profit has always attracted speculators and scammers. But many serious investors were denied the opportunity to invest in ICOs for fear of losing capital.

But the market, which defines winners and losers as a system of supply and demand, has reliably learned that blockchain technology can bring much more benefits to enterprises and consumers than investment in dubious projects. As a result, many investors are more and more interested in technology itself, and not in the ICO market, as a viable and profitable means of developing a young industry.

The dotcom crisis is still fresh in the memory of many. So many existing companies have reoriented their business models to online platforms. Indeed, business models were ineffective and led to market failures and depression. The ICO market is likely to expect the same fate: the recent decline in investment in new ICO projects indicates the veracity of sad forecasts.

Many blockchain projects issue their own tokens and coins, but over the past 2 months they have shown a catastrophic drop in 70% of market capitalization. In such circumstances, crypto traders can only dream of having access to at least some stock market instruments that will protect them from the galloping volatility observed at that time.

Available options

In 2017, the global insurance market amounted to $ 7 trillion. However, now, even with a remote connection to cryptocurrencies, insurance is still a huge risk. One reason is that the sector is strictly controlled, and all participants must undergo legalization and financial procedures to demonstrate the sustainability of their business models and the availability of support resources. On the other hand, industry is controlled by large corporations, which means an unacceptable entry threshold for most.

According to the forecasts of the Juniper research center, by the end of 2018, the total income of the insurance sector will increase to 235 billion US dollars, which is 34% more than in the corresponding period of 2016. Many believe that the growing cryptocurrency market will become a catalyst for the development of the insurance sector. Given the high market volatility, most investors will be interested in protecting their assets from changes in exchange rates. In this case, the term “protection” is really suitable as the financial equivalent of insurance.

In the case of an ICO, coverage is beneficial to both parties to the transaction. Thus, the investor reduces the number of possible losses, while the ICO project increases its attractiveness for investments, since any losses associated with a lower cost of tokens are covered free of charge. The maximum amount of cryptocurrency coverage is estimated at $ 20 billion over the next 5 years. It should be noted that the market is still waiting for some serious players, so sooner or later it will be inevitable. This is mainly due to the gradual transition to digital currency, since even the central banks of some countries are starting to talk about national cryptocurrencies.

The main problem is the formation of a clean and safe infrastructure to cover the huge market volatility. Few are willing to risk such money.

At the same time, there are already insurance projects on the market, such as BitPark, P2P insurance platform. The concept of the project is to create a P2P platform that allows those who take on risk insurance to avoid the giant insurance giants with their exorbitant maintenance costs.

Another Oduwa project is a blockchain exchanger and insurance for traders against volatility. The founders of the project claim that Oduwa coins are a new generation of cryptocurrencies that provide security and guarantees. Instead of offering insurance solutions, Oduwa offers an exchange in which everyone can exchange and trade Oduwa coins without commissions, as well as a system that offers the ability to search for new cryptocurrencies. However, the prospects for project success are mixed.

The fact is that such projects are quite far from the ideals that traders strive for, since their structures do not provide a structure that would really insure against potential risks that the cryptocurrency market is afraid of. However, the Russian project has recently entered the market with a proposal that meets the criteria for a hedging structure much more than all trading and trading platforms.
DeHedge was originally created as a hedging project. As a hedging instrument, the project uses the initial exchange rate of the project tokens and automatically reimburses the costs of investors, as well as the coverage period if the exchange rate of the tokens of the selected project has fallen. Thus, the maximum loss is equivalent to insurance payment.

“The lack of risk management tools rejects a large number of people interested in cryptocurrencies: both professionals who are used to calculating math in their systems, and inexperienced investors. The development of risk hedging tools in the cryptocurrency market will be a new milestone in the development of the cryptocurrency sector, a bridge that connects the worlds of Fiat and cryptocurrencies and offers new conditions for new investors, ”said Dmitry Ansimov, associate and founder of DeHedge.

Conclusion

Insurance is a term that is not yet on the cryptocurrency market, and it is unlikely to appear along with the created regulatory acts, since there are no legal acts in this sector yet. Operators will work with increased risk if instruments available in ordinary financial markets are not transferred to cryptographic platforms. To stay on the market, every technology, even blockchain, must first prove its value to the ordinary consumer and company. But if unscrupulous speculators continue to grow, deceive others and market participants do not receive the necessary protection for their investments, the market may explode like a bubble, and this will slow down the development of the blockchain, which will lead to a recession in the industry.

bit44.org

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