Last week, Kim Kardashian settled with the SEC after the SEC announced charges against the social-media and reality TV star for promoting a crypto-currency token called EthereumMax, on her Instagram account, where she boasts more than 330 million followers, without disclosing that she received payment for the promotion. Kardashian agreed to pay $1.26 million in penalties, including the $250,000 EthereumMax paid her for promoting its crypto-tokens to potential investors. SEC Chair Gary Gensler stated that Kardashian’s case is “a reminder to celebrities and others that the law requires them to disclose to the public when and how much they are paid to promote investing in securities.”
Continue Reading Kardashian Coverage Conundrums

In the 18th Century, underwriting desks at what came to be known as Lloyd’s of London were developed to share or transfer risks associated with shipping. Availability of risk sharing, or insurance, provided protection for maritime investors and facilitated increased levels of investment and thus increased levels of maritime activity. Risk transfer has become an essential part of the development of a marketplace for many products.
In the early years of cryptocurrency, there were no insurance products specifically designed to cover cryptocurrency-related losses. Much like the presence of insurance fosters development of a marketplace, the absence of insurance hinders it.
Continue Reading Digital Asset Insurance Coverage Series, Part 4: History Of Insurance Coverage Specifically Designed For Cryptocurrency

In the early years of cryptocurrency, there were no crypto-specific insurance coverages. Instead, policyholders sustaining losses were left to try to access coverage under traditional insurance policies such as:
Continue Reading Digital Asset Insurance Coverage Series, Part 3: How Traditional Insurance Products Can Help Protect Policyholders From Loss And Liability Related To Digital Assets

Who can incur losses associated with cryptocurrency or digital assets? The real question is who uses them.
Among the most obvious users would be exchanges in which cryptocurrency is traded. It has been reported that the largest insurance market in the cryptocurrency industry consists of exchanges that insure against thefts from cryptocurrency hackers. Among the more prominent exchanges are Coinbase, Crypto.com and Gemini. Similarly obvious are the third-party custodians that store cryptocurrency and other forms of digital assets on consumers behalf such as BNY Mellon Crypto Currency or Fidelity Digital Assets. They provide safekeeping of digital assets including keys and ensure accessibility.

Continue Reading Digital Asset Insurance Coverage Series, Part 2: Who Can Incur Losses Associated With Digital Assets And What Are The Potential Risks Of Loss And Liability Related To Digital Assets?

Crypto markets are experiencing the greatest crash in their history to date. The value of a Bitcoin (BTC) has plummeted 70% from its peak and Ethereum (ETH) has fallen 77%. Since last November, the value of cryptocurrency tokens has lost $2 billion in value. As noted financial publication Barron’s put it: “Crypto is having a ‘Lehman moment,’ a shattering of confidence triggered by plunging asset prices, liquidity freezing up, and billions of dollars wiped out in a few scary weeks.” Cryptocurrency companies are halting withdrawals and transfers, platforms are seizing up, and regulators are circling.
Nor has the devastation been limited to the coins themselves. Non-fungible token (NFT) sales have reduced by 90% since September 2021. The New York Times reported that Opensea.io (OpenSea), an NFT marketplace that receives 2.5% share of the proceeds for each NFT sale, has been plagued by “a surge of plagiarism, as sellers convert traditional artwork into NFTs and then list the images for sale without compensating the original creator.” For example, DeviantArt, an artist collective that scans OpenSea for copyright infringement of the work of its artists, found 290,000 instances of unauthorized NFTs copying its artists’ works. While infringing listings can be deleted in response to take down requests filed by the artist, buyers of counterfeit NFTs are rarely given a refund.

Continue Reading Hunton Insurance Group Advises Policyholders on Issues That Arise With Insurance Coverage for Digital Assets, Specifically Cryptocurrency and NFTs — A Seven-Part Series 

From IRS rulings that “virtual currency” is taxed as “property” to an SEC lawsuit claiming that digital assets are “securities” under federal law, meteoric growth of the largely unregulated crypto industry has raised numerous questions about whether crypto-related risks are covered by insurance. In the latest example of the intersection of crypto and insurance, a California federal court recently held that cryptocurrency stolen from a Coinbase account did not constitute a covered loss under a homeowner’s insurance policy. The fundamental issue was whether the stolen crypto met the policy’s requirement for “direct physical loss to property” and, more specifically, whether the losses were “physical” in nature. The court ruled against coverage, reasoning that lost control of cryptocurrency is not a direct physical loss as a matter of California law.
Continue Reading California Holds Stolen Cryptocurrency Does Not Qualify as “Physical” Loss Under Homeowners’ Policy

As crypto-asset losses continue to rise, the industry is taking steps to protect clients and investors through insurance. Crypto-exchange and custody provider, Gemini Trust Company, LLC (“Gemini”), recently launched its own captive insurance provider, Nakamoto, Ltd. Captive insurance is an alternative to self-insurance whereby a company creates a licensed insurance company to provide coverage for itself. According to a statement from Gemini, Nakamoto is “the world’s first captive to insure crypto custody” and allows Gemini “to increase its insurance capacity beyond the coverage currently available in the commercial insurance market” for cryptocurrency wallets not connected to the internet, commonly referred to as “cold storage.” According to Gemini, this move makes Nakamoto the world’s most insured crypto-asset cold storage solution, which signals an expectation of increased demand in the crypto market.

Continue Reading Captive Insurance Offers Protection to Growing Crypto-Currency Industry

As reported yesterday in Business Insurance, Lloyd’s of London underwriters have agreed to insure digital currency storage company, Kingdom Trust Co., against theft and destruction of cryptocurrency assets.  The cover comes after almost a decade-long search by Kingdom Trust for insurance to cover its crypto-assets.  According to the BI, Kingdom Trust sees the availability of insurance as a key factor in bringing institutional investors into the marketplace by dispelling concerns about lack of traditional safeguards in the emerging crypto-asset space.

Continue Reading Lloyds Jumps Into The Cryptocurrency Market, Insuring Part of Kingdom Trust’s $12 Billion Assets

This week, SEC Chairman Jay Clayton issued a statement on Initial Coin Offerings (ICO) addressing the legality, fairness, and risks associated with those offerings. Although the agency’s bulletin was one of many recent public statements by federal agencies on ICOs and cryptocurrencies generally, this new warning highlights additional issues and concerns with the ICO phenomenon that are particularly relevant to insurance coverage.

Continue Reading Initial Coin Offerings and Insurance