BitGo, a company which offers bitcoin hot wallet and cold storage solutions for both individuals and enterprises, has annouced they will now be offering an insurance policy for paid customers. The company prides itself in having the "best" bitcoin web wallet. In fact, their website displays in a large heading "More than just a wallet" offering "Advanced Security", and "24×7 monitoring" for the "World's leading Bitcoin Companies" which includes the known scam Bitcoin Shop and Bitstamp. One of Bitstamp's operational hot wallets was hacked earlier this year, but the hot wallets are now managed by BitGo's enterprise services as indicated by a testimonial on the front page by Bitstamps's CEO:
BitGo is the only company in the industry we trust to secure our hot wallet. The integration was very straightforward, and now I can sleep better at night knowing that my customers' holdings are secured with BitGo.
The insurance policy applies to all BitGo paid accounts up to $250,000 in value, provided by Innovation Insurance Group LLC and XL Group. The policy covers loss by "acts, errors, or omissions of BitGo technology, processes, and employees, including external hacking incidents and employee theft." The press release also states, "the policy would reimburse BitGo's customer for the value of the lost or stolen bitcoins." Customers making claims would be paid in USD rather than the BTC they lost. FDIC insurance is paid for by inflation which cannot apply to Bitcoin due to its finite supply.
In the hypothetical event of a catastrophic loss of 100,000 BTC, the demand for BTC from angry cusomters would exceed the Bitstamp order book:
thestringpuller: ;;market buy 100000
gribble: Bitstamp | This order would exceed the size of the order book. You would buy 12464.151 bitcoins, for a total of 5694585.6424 USD and take the price to 99999.0000.
This hypothetical event is essentially the forceful liquidation of bitcoin holdings into fiat currency, as many customers would be unable to resupply their lost bitcoin with their insurance payout.