Crypto 101: What Is The FDIC?

July 7, 2022 - Around 5 mins mins to read

One of the benefits of using cryptocurrency is the anonymity you receive through transactions. Unfortunately, this is also one of the main reasons that most exchanges offer no FDIC protection. This means that if the crypto exchange loses your dollar reserves, you have no protection. So what is the FDIC?

What Is the FDIC?

The Federal Deposit Insurance Corporation, better known as the FDIC, is a program that insures cash deposits in bank accounts. It was created in the wake of the Great Depression when panicked customers rushed to take their money out of banks for fear of losing those deposits.

Since banks use the money they hold on deposits to operate, a bank rush can put the entire institution out of business and leave customers with nothing.

To keep this from happening again the government now insures bank deposits. If your bank goes out of business or otherwise runs out of money, the government will reimburse any lost funds from your checking or savings accounts.

This insurance covers up to $250,000 in losses per person per bank and only applies to U.S. dollars held by licensed U.S. banks that pay into the FDIC’s insurance program.

Critically this means that the FDIC does not protect foreign currency or investment assets. If you have dollars in a checking or savings account and your bank loses the money, the FDIC will cover those losses. If you hold a stock portfolio and the market crashes, the government won’t make you whole.

Does the FDIC insure cryptocurrency?

The FDIC does not protect cryptocurrency because it considers crypto investment assets, not money. Even if the government changes its position on that issue, the insurance only insures U.S. dollars. The result is that if you hold cryptocurrencies like Bitcoin, Ethereum, Dogecoin, or any other similar assets, the FDIC treats them like investment assets. It does not reimburse you for any losses, including:

Lost value of existing coins if the value of individual tokens in your portfolio declines;
Lost coins themselves if the number of tokens in your portfolio declines.

So, for example, say that you have a portfolio with a cryptocurrency exchange. The exchange is hacked and thieves steal your cryptocurrency tokens, or perhaps the exchange goes out of business and can no longer honor your cryptocurrency tokens. The FDIC will not reimburse you for these losses.

However, the FDIC might insure the U.S. dollars that you hold in a cryptocurrency exchange. Typically, this will be the case for exchanges that hold customer funds in FDIC-insured banks. This means that the exchange doesn’t hold the money itself. Instead, any dollars in your account are held by a third-party bank and moved as necessary when you buy and sell cryptocurrencies.

As a result, it’s more technically accurate to say that some cryptocurrency exchanges hold their money in U.S., FDIC-insured banks rather than that the FDIC covers some cryptocurrency exchanges.

List of FDIC-Insured cryptocurrency exchanges

It would be impossible to give an exhaustive list of all cryptocurrency exchanges that do or do not offer FDIC protection. There are simply too many of them. However, the largest exchanges in the world do more than $1 billion in trading volume per day (exchange size as of the time of writing).

Among those largest exchanges in the world, and we included a few that have less volume but are popular exchanges in the U.S., here are the ones that do and do not offer FDIC protection for your dollars on your deposits:

Binance – Insured for investors who trade with Binance.us
Upbit– Not insured
CITEX – Not insured
TOKENCAN – Not insured
BitForex – Not insured
P2PB2B – Not insured
LBank – Not insured
AAX – Not insured
FTX – Insured for investors who trade with FTX.us
Com- Not insured
Gemini – Insured
io- Not insured
HitBTC – Not insured
Coinsbit– Not insured
Bitrue– Not insured
Deepcoin – Not insured
IndoEx– Not insured
Coinbase – Insured
Huobi Global– Not insured
KuCoin – Not insured
OKX – Not insured
Changelly PRO – Not insured
BitMart – Not insured
MEXC – Not insured
CoinFLEX – Not insured
Hoo – Not insured
BKEX – Not insured
DigiFinex – Not insured
Pionex – Not insured
Cypto.com – Insured

So to sum it up, you’ll want to choose Binance, Gemini, Coinbase, or Crypto.com from the list above if you’re looking for FDIC insurance for your dollars on exchanges.

Conclusion

A few exchanges do participate by holding dollar reserves in an FDIC-insured bank. With those exchanges, if you lose your money on deposit the insurance will reimburse those losses up to the program’s cap. So if you are a professional trader or want to be one of them, this is important information for you.

DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.

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Harold

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