Anchorwatch provides Bitcoin-native insurance. On one level the problem is the risk of self-custody, which will always be as large a market as some fraction of Bitcoin’s capitalization. HNWI’s, custodians, exchanges, and any companies adopting Bitcoin as a treasury asset roughly constitute the target market. There is reason to believe this is both large and attractive. Large because both Bitcoin’s price and its broader financial and cultural normalization mean that this market is likely to grow significantly at least over our investment horizon, if not much beyond. Attractive because the opportunity comes about due to novel technical properties that require some expertise to competently address. Property and casualty insurance on gold is the only remotely similar product category and gold cannot be secured by timelocks and multisigs. In other words, gold is not programmable. Bitcoin Script, and in particular relatively recent developments in Miniscript pioneered by Anchorwatch, enable a kind of risk pricing that quite simply has no historical precedent.

Anchorwatch’s competitive advantage may be as simple as: they understand insurance and they understand Bitcoin. Given there are probably on the order of a hundred to a thousand people who truly understand Bitcoin Script and Miniscript, the question seems: how many of these people are also starting insurance companies? Cofounders Rob Hamilton and Becca Rubenfeld clearly do. Their expertise and competence has been rewarded by Lloyds of London awarding them cover holder status as the only company in the world authorized to offer Bitcoin insurance to retail customers. This is true even if we widen the product definition to “Crypto” (which we have no intention of doing for any reason other than to make this point).  

All this said, a better understanding of the long-term opportunity is to appreciate that there is essentially no risk financing around Bitcoin. An obvious example is insurance for Lightning nodes, given the inherent protocol- and hot wallet-risk. This is arguably essential to fully price the cost of capital for allocation to yield on Lightning, which is itself a crucial component (arguably the RFR analogue) of a Bitcoin-denominated financial system. But this logic can be extended even more excitingly: insurance-directed, Miniscript-enabled timelocked multisigs on the one hand and Lightning on the other are specific kinds of smart contract and so this can be conceived of in a more generalized way as smart contract insurance. If one’s Bitcoin is secured by a Trident wallet, that could be one kind of insurance at one rate; if it is in some other kind of smart contract, that could be another. There is no reason one wouldn’t want to insure one’s exposure to a Zero-Knowledge Rollup, an Ark Service Provider, or any number of scaling and financial tools that haven’t even been invented or implemented yet.

While the short-term potential revolves growing the user base of the foundational custody-focused product, the long-term potential is to embrace and drive the fusion of value and software. Not “defi” and token scams, but a means of lowering the cost of capital for genuinely productive endeavors by utilizing the natively digital properties of the capital being deployed.

Anchorwatch is a holding in Axiom Venture Funds I and II