How FDIC Insurance Could Increase Bitcoin Adoption

To date, numerous crypto companies made claims that the deposits they were holding on to were insured by the FDIC or the US Federal Reserve, making them seem like the average savings account.

One major example is that of Voyager Digital, a now-bankrupt crypto lender that was faced with pressure from regulators to remove false statements about FDIC insurance.

Then, FTX, a major crypto exchange, also got a notice from the FDIC, telling them to not suggest that users’ funds are insured.

Although no crypto firm has provided its depositors with such insurance, crypto proponents think that it could help lead to increased adoption.

No Major Crypto Firms FDIC-Insured

As things currently stand, even bigger crypto firms don’t have FDIC insurance. Coinbase, despite being one of the biggest exchanges for digital currencies, doesn’t have FDIC insurance.

On its page, users can see that it does offer insurance against theft, but that it isn’t an FDIC-insured bank. Moreover, it says that cryptocurrencies aren’t guaranteed by the FDIC, nor are they subject to the corporation’s protection.

However, Coinbase does mention that as long as customer deposits are held in cash, they are safely stored in custodial accounts at FDIC-insured banks.

A spokesperson for the crypto exchange platform mentions that Coinbase complies with the latest guidelines from the FDIC when speaking to Cointelegraph.

Potential Impact of FDIC on Cryptocurrencies

FDIC insurance helps in safeguarding customers’ deposits in the event that a bank fails. According to Cal Evans, managing associate at Gresham International, FDIC insurance acts as a layer of protection that covers the deposit of one account holder for up to $250,000.

If the FDIC would start insuring customer deposits on the crypto platform, it would certainly gain an edge over other platforms.

That’s because the perceived security of the exchange or lender would give it a major popularity boost. Customers would see it as a green flag that regulators also approve of the firm’s policies.

The Difficulty of Getting FDIC Insurance for Crypto Firms

Evans explains that it’s quite easy for crypto firms to get FDIC insurance as long as they meet specific criteria. It’s likely that the firm will have to prepare necessary applications, give details about its management structure, and prove its liquidity.

According to analysts, getting insured by the FDIC would give US-based crypto firms a massive boost over firms operating outside the US. US residents would have the incentive to open an account with an FDIC-insured platform as opposed to decentralized exchanges.

However, some say that even if they do get insured by the FDIC, it would involve sacrificing a core value of cryptocurrency: decentralization.  Not to mention, the FDIC’s interactions with crypto firms so far suggest that the damage is done.

By telling firms not to say that they’re FDIC-insured, the agency effectively reduced people’s trust in crypto.