Metropolitan Commercial Bank (MCB) is pulling out of the cryptocurrency market, while Silvergate Bank is facing a crypto run. On top of that, the budding crypto insurance market offers little protection for investors.

Insurance

While cryptocurrency insurance policies are increasing, their focus seems to be on commercial accounts. Those policies offer protection from theft held in a firm’s storage system. However, that protection does not extend to individual accounts where the loss is the result of a breach or loss of credentials.

As an investor, you are virtually on your own.

“I’m not aware of any insurance products to protect individual investors,” says Michael Menapace, insurance lawyer, author, and law professor with Wiggins, Dana, LLP, ”just like there is no insurance to protect investors against a loss in an individual stock.”

Defining Crypto

Your homeowner’s policy may include crypto. However, if it does, the coverage will be limited.

“What has to be determined is, what is crypto? It could be: one currency, two a security, or three property,” says Menapace.

If your cryptocurrency is considered a security, your homeowner’s policy would provide no coverage, according to Menapace. If it is considered cash, your digital money is covered but usually only up to about $500.

The courts are yet to rule on how to classify cryptocurrency. However, the IRS, for purposes of taxation, has determined cryptocurrency is property.

Menapace expects the Securities and Exchange Commission to ultimately decide how cryptocurrency is defined. 

Banks Bailing

Metropolitan Commercial Bank announced Monday that it is closing its crypto-related business. 

Recent developments in the crypto-asset industry, material changes in the regulatory environment”, prompted the action, according to a statement by the bank. However, MCB President and CEO Mark R. DeFazio said the move was a long time coming.

“Today’s announcement of our exit from the crypto-currency-related asset vertical represents the culmination of a process that began in 2017 when we decided to pivot away from crypto and not grow the business,” said DeFazio. “Crypto-related clients, assets, and deposits have never represented a material portion of the Company’s business and have never exposed the Company to material financial risks.”

Meanwhile, the bank Silvergate Capital has seen 68 percent of its deposits head for the exit following FTX’s collapse in November. Investors learned the extent of Silvergate’s exposure to the FXT debacle when fourth-quarter results were announced last week.

Silvergate has sold over $5 billion in assets to cover losses and remain liquid.

Nothing New

This has been an especially shaky year for crypto banking institutions.

The same year DeFazio says MCB turned away from crypto, a new kind of crypto bank, called Celsius, was formed. Celsius rapidly grew to $25 in crypto assets through an aggressive marketing campaign.

Celsius allowed customers to take out low-interest loans and put their crypto in high-interest savings accounts. Those accounts were supposed to be paying a 20 percent annual percentage yield (APY). However, the firm collapsed and filed for bankruptcy in July in what has been described as a Ponzi scheme.

Crypto lender Voyager Digital also filed for bankruptcy in July. In addition, crypto hedge fund Three Arrows Capital went into bankruptcy in June. 

Max Erkiletian

Max K. Erkiletian began writing for newspapers while still in high school. He went on to become an award-winning journalist and co-founder of the print magazine Free Bird. He has written for a wide range of regional and national publications as well as many on-line publications. That has afforded him the opportunity to interview a variety of prominent figures from former Chairman of the Federal Reserve Bank Paul Volker to Blues musicians Muddy Waters and B. B. King. Max lives in Springfield, MO with his wife Karen and their two cats. He spends as much time as possible with his kids, grandchildren, and great-grandchildren.