What is FDIC insurance, and what does it have to do with crypto?

Welcome to the Cryptohunt Jam, where we spend one minute a day to explain crypto. In plain English.

Today, let's talk about a major regulatory rule in the United States, the FDIC insurance, and what it has to do with crypto.

Personal bank accounts in the United States are usually protected by this deposit insurance. It is a government operated, bank funded protection against the failure of your bank. In the unlikely event that your bank collapses, your deposits are usually covered up to hundreds of thousands of dollars.

The reason why this matters for crypto investors in the United States, is simple: That insurance doesn't exist for them. Many assume that the same protections apply across different financial organizations, but the reality is that the bankruptcy of a crypto exchange or DeFi company may simply cause your funds to disappear over night.

Think that's a hypothetical risk? Not so fast. Celsius, which marketed itself as the anti-bank, recently collapsed and owes people $5.5 billion US dollars. Three Arrows Capital, a crypto hedge fund, owes $3.5 billion - meanwhile the founders are building a $50 million dollar yacht. And it took crypto brokerage Voyager down with it, which in turn lost $1.3 bn in customer assets.

So there you have it - governments often step in to help people avoid total loss. If you are in the United States, always consider that trusting a crypto firm with your money means you get none of the protections a traditional bank would give you.

Disclaimer: This podcast references our opinion and is for information purposes only. It is not intended to be investment advice. Do your own research and seek a duly licensed professional for investment advice.