NEW YORK (Reuters) - U.S. virtual currency firm Gemini Trust Company announced on Thursday that it has launched its own insurance unit to boost coverage against theft of crypto assets.
Gemini’s new in-house insurer, Bermuda-based Nakamoto Ltd, provides a total of $200 million in coverage for virtual currency that Gemini holds on behalf of customers, Gemini said.
Gemini is owned and operated by virtual currency entrepreneurs Cameron and Tyler Winklevoss.
The company sees a robust insurance program as a means for the use of virtual currency to become more mainstream, said Yusuf Hussain, Gemini’s head of risk.
“Insurance is one of the last hurdles,” Hussain said in an interview. “In order for there to be mass adoption, the path forward is a regulated, compliant exchange system that clients have become accustomed to in traditional finance.”
Many types of companies form their own insurers as a way to help cover business risks that can be impossible or too expensive to insure. These in-house insurers are known in the industry as “captive insurers.”
The formation of a captive insurer for protecting digital currency held on behalf of customers is a relatively new strategy.
Only a few traditional insurers sell insurance for companies that handle virtual currencies like bitcoin and ether, which trade between anonymous parties. (reut.rs/2RjtARV)
Even then, insurers have typically avoided coverage for coins kept online, or in “hot storage,” because of a high risk of hacking. They tend to only cover offline “cold storage,” which is also generally preferred by cryptocurrency companies.
Gemini customers can buy additional coverage through a combination of its captive and traditional insurer, said Hussain.
As a registered New York trust company, Gemini also carries state-mandated insurance against employee theft, computer fraud, and fund transfer fraud.
Aon, an insurance broker and professional services firm, is managing Gemini’s insurance unit.
(This story corrects typo in paragraph 5 to say “regulated”. Earlier version said “regular”.)
Reporting by Suzanne Barlyn, Editing by Rosalba O'Brien