LONDON (Bywire News) - Cryptocurrency traders and exchanges are facing an uncertain future as insurers are denying or limiting coverage to those with exposure to bankrupt crypto exchange FTX. The collapse of FTX has heightened concerns among specialists in the Lloyd's of London and Bermuda insurance markets who are requiring more transparency from crypto companies regarding their exposure to FTX.
Insurers are proposing broad policy exclusions for any claims arising from the company's collapse and are asking clients to fill out a questionnaire that asks whether they invested in FTX or had assets on the exchange. A mandatory questionnaire is also being given to clients by Lloyd's of London broker Superscript.
Bermuda-based crypto insurer Relm is taking an even stricter approach and will not offer coverage if a crypto exclusion or a regulatory exclusion must be included.
The most pressing question now is whether insurers will cover D&O policies at other companies that had dealings with FTX due to the problems facing the exchange's leadership.
Insurance rates are already high due to the perceived risks and lack of historical data on cryptocurrency insurance losses. A typical crime bond would cost $30,000 to $40,000 per $1 million of coverage for a digital assets trader, compared with a cost of about $5,000 per $1 million for a traditional securities trader.
The FTX collapse has left digital currency traders and exchanges without insurance for any losses from hacks, theft or lawsuits, leaving the industry in a precarious position.
By Noor Zainab Hussain and Carolyn Cohn
(Reporting by Noor Zainab Hussain in Bengaluru and Carolyn Cohn in London; Editing by Michael O[Sullivan, Lananh Nguyen and Anna Driver)