Bitcoin price fell 27%, how to insure crypto assets?

by James · November 24, 2022

Bitcoin price fell 27% in less than a week.
Abnormal Bitcoin price volatility was caused by forced liquidations of investment giants, such as BlackRock and Sequoia Capital.
During periods of Bitcoin downturns or high volatility environments, it is important to use crypto insurance products.

Latest news talks a lot about the collapse of FTX, a giant in the cryptocurrency market, which until recently was one of the TOP-3 crypto exchanges in the world and had a value of over $30B. After a series of negotiations with Binance, the company finally filed for bankruptcy. There was no way such an event would not affect the market as a whole. As a consequence, Bitcoin fell by 27% in the last week, from $21,500 to $15,700 – the lowest mark since 2021.

Cointelegraph reports that Sam Bankman-Fried, the founder of FTX, managed his trading company Alameda Research using FTX clients’ assets. Also, Alameda Research reportedly had liabilities worth $8 billion. Since Bitcoin is used as general collateral for various cryptocurrency contracts, such as DeFi contracts to FTX, it was also affected and was one of the biggest losers among the crypto space.

In addition, Bitcoin volatility and price were affected by the liquidity crisis and forced liquidations (as the Value at Risk was at a critical level) of investment giants, such as BlackRock, SoftBank, VanEck, Sequoia Capital or the Ontario Pension Fund, all of which invested in FTX.

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Crypto winter continuation

Since the beginning of 2022, Bitcoin has fallen by 67%, and every day has continuously destroyed people’s hopes for a reversal and an early end to the crypto winter. Since its peaks last November, Bitcoin has fallen by more than 78%. The total capitalization of the crypto market suffered a loss of almost 2.2 trillion dollars, and Bitcoin’s volatility increased by more than 50%.

People have become apprehensive about joining the industry and do not want to risk losing their money, especially when they consider the looming fear of a recession. But how can investors protect their assets?

Insurance of crypto price behavior

There are a number of tools and strategies that an investor can use to hedge against risk and protect against loss. Futures, swaps or options are usually considered good instruments to turn to. But in this article I want to highlight another arguably simpler instrument – crypto price insurance.

This type of insurance provides the ability to protect the user’s digital assets against adverse price movements and increases in market volatility. In general, it works as follows: after buying some cryptocurrency (Bitcoin, Ethereum, Ripple, Solana, etc.), the investor can set up an insurance contract for a suitable period of time, a desired amount of digital assets to insure, and a set price at which the assets must be insured for.

When the insurance contract expires, the service provider will assess the value of the investor’s digital assets according to the current market interest rate. If the rate turns out to be lower than the price at which the investor originally bought and insured his crypto, the provider will compensate for the difference.

To summarize, crypto price insurance is a tool that is quite similar to traditional options, only with a few kinks ironed out. Since the provider company handles the heavy lifting, users don’t have to personally insure the risk, making the whole process much easier and smoother.

In addition, companies can offer insurance coverage via different assets: cryptocurrencies, tokens, USDT stablecoin, or even fiat currencies, such as USD or EUR. This kind of versatility provides a great advantage, as users can choose a preferred compensation method for themselves.

So with such insurance in place, investors can survive the latest Bitcoin crash without losing a dime.

Crypto insurance as one of the ways to beat the market

One of the most important aspects of portfolio management is combining assets that allow you to earn the greatest return with minimal risk. It is important to protect your portfolio during downturns or periods of high volatility, using various financial instruments.

Insurance services that we have covered above can be an effective means of attracting more private and institutional investors, as they provide security for people to feel safer in a risky environment. If price insurance becomes a staple service offered by any crypto platform in addition to other products, it will be taken as a sign of a maturing digital asset ecosystem.