You can purchase additional insurance, much as Bitcoin exchanges with insurance will also charge higher fees, because they're not getting that insurance for free (indeed, probably substantially more expensive per "dollar", because of things like poor/poorer security, etc.).

And yes, it does. Much like a transaction on the blockchain might if you paid only $3 in mining fees. Or you could pay $30-50 and get it cleared much more quickly, just as I could pay for a wire transfer and get things done in n hour or two.

How is the fdic insurance limit a disadvantage? Is there someone currently that will insure your bitcoins deposited with them?

I could buy insurance on my bitcoins - i'm not required to hope for a single institution however on a bitcoin - it's decentralized (fdic insurance isn't free, ultimately it's funded by taxes)

I vaguely think (not being in the insurance industry) that in order to be efficient, or even viable at all, insurers have to have some control over what they underwrite, which in turn requires knowledge about it.

Does it make sense that someone would be willing or able to quantify the risk of my losing a bitcoin deposit held by a third party? Is there someone selling such insurance now?

The FDIC has some ability to control and regulate the banks that it insures, including dealing with a failed bank. If somebody random claims to provide insurance, it doesn't inherently imply they have the same powers/information.

I think coinbase has insurance

Edit - https://support.coinbase.com/customer/portal/articles/166237...

That is interesting. I read: "Even if Coinbase were to become insolvent, the funds held in the custodial bank accounts could not be claimed by Coinbase or its creditors. The funds held in those accounts would be returnable to Coinbase’s customers."

Which sounds like what I would want to hear as a customer. However in context, that refers specifically to "fiat currency" only. So I would have to assume that whatever the insurance does, it doesn't protect me in the same way with respect to digital currency...?

Of course, I have never been in a situation where SIPC insurance mattered, so I don't have that to compare to.

But the level of risk here is not clear to me, and the language suggests it could be different from what I think of as normal.

I think the fair market value of the coins in USD are insured, not the actual crypto currency / bitcoins. Much like insuring a ring - the insurance company doesn't stock pile rings. They pay out cash upon a claim.