With a 5.1% APY on BTC, the BlockFi Interest Account seems like a ray of sunshine for digital asset holders that have grown used to having their holdings slosh around with market volatility. Let’s explore in our BlockFi review.
The BlockFi Interest Account:
- It allows users to earn competitive compound interest rates on their cryptocurrency (currently BTC, ETH, and GUSD).
- Keeps cryptocurrency deposits secure. BlockFi’s cryptocurrency deposits are held by the Gemini Trust Company, regulated by the New York Department of Financial Services.
- It is available worldwide, outside of sanctioned or watchlisted countries.
- Allows for anytime withdrawals. Users get one free withdrawal per month.
- It offers simple and easy registration.
The BlockFi Interest account is the only cryptocurrency storage option that pays substantial interest and offer rates that are competitive with most non-cryptocurrency interest rates. For example, high-interest savings accounts Ally Bank (1.6%) and WealthFront (1.82%) pale in comparison, although they are FDIC-insured, whereas BlockFi’s cryptocurrency deposits are not.
BlockFi also offers loans backed by your cryptocurrency with a 50% LTV ratio. The following BlockFi review and interview is specifically for the BlockFi Interest Account, and not for the loan products.
BlockFi is a privately-held NYC-based lending platform founded in 2017.
The BlockFi Team
BlockFi’s leadership team has decades of experience in the traditional financial services and banking world, and the company claims to take a conservative approach to regulation that will position it for sustainable long-term growth and expansion.
Founder & CEO, Zac Prince has experience in leadership roles at multiple successful tech companies. Prior to starting BlockFi, he led business development teams at Orchard Platform, a broker-dealer and RIA in the online lending sector, and Zibby, an online consumer lender.
Co-Founder & VP of Operations Flori Marquez has experience managing alternative lending products. In the marketplace lending industry, she helped build, scale, and optimize a $125MM portfolio for Bond Street (acquired by Goldman Sachs). As Head of Portfolio Management, Flori managed all operations from point of origination through to default and litigation.
Chief Risk Officer, Rene Van Kesteren spent over 15 years at BAML as a Managing Director of ML Professional Clearing / Prime Brokerage. During his time there, he built the equity structured lending platform, including risk and regulatory compliance frameworks. Prior to BAML, Rene worked as an equity derivatives trader in Caxton’s Strategic Quantitative Investment Division.
BlockFi recently raised $18.3 million in Series A funding led by Valar Ventures (Peter Thiel-backed) with participation from Winklevoss Capital, Galaxy Digital, ConsenSys Ventures, Akuna Capital, Avon Ventures, Susquehanna, CMT Digital, Morgan Creek, and PJC.
BlockFi has also raised earlier rounds by SoFi and Purple Arch Ventures.
The team notes that they anticipate raising additional capital in the future to facilitate continued product development and rapid growth.
BlockFi Review: BlockFi Interest Account Review and Interest Rates
The BlockFi interest rates are fairly competitive, especially when compared to simply keeping your cryptocurrency on an interest-free exchange or wallet.
- Bitcoin: Users can earn up to 5.1% in annual interest on deposits under 5 BTC, and 2.2% on any BTC amount above that 5 BTC threshold.
- Ethereum: Users can earn up to 3.6% in annual interest on deposits under 500 ETH, and then 0.5% on amounts over that 500 ETH threshold.
- Litecoin: Users can earn up to 3.8% in annual interest on all deposits.
- Gemini Dollars: Users can earn a whopping 8.6% interest on their GUSD deposits.
- USDC Dollars: Users can earn a whopping 8.6% interest on their USDC deposits.
The interest rates are paid in their nominal cryptocurrency. For example, you will earn 0.062 BTC on 1 BTC in a full year, provided the interest rate stays the same. This is a double-edged sword, of course, but if you’ve been in the cryptocurrency space for a while you’re no stranger to the pros and cons of owning a volatile asset. Your 0.062 BTC could either be more or less than its USD equivalent at the time of deposit, so plan accordingly.
However, earning 8.6% on a stablecoin such as Gemini Dollar eliminates some of the volatility risks. $10,000 in GUSD will earn you $860 in GUSD for the full year, and since it’s pegged to the U.S. Dollar, you won’t have to be concerned about its price being drastically different (provided something catastrophic doesn’t happen to Gemini or its GUSD.)
Please note that BlockFi charges flat withdrawal fees. which are subtracted from the total withdrawal amount. Users get 1 free withdrawal per month.
How Does BlockFi Make Money?
At its roots, BlockFi is a spread business that makes money by borrowing capital at a certain rate (the interest rates it pays to users) and lends it a higher rate (the interest rates it offers for BTC/ETH/GUSD loans).
A BlockFi blog post notes that the company primarily works with institutional counterparties to offer them liquidity. These borrowers consist of:
- Traders and investment funds that seek arbitrage trading opportunities in a fragmented marketplace. They borrow cryptocurrency to close mispricing gaps between exchanges or dispersed markets. Margin traders will borrow to fuel their trading strategies.
- Over the counter (OTC) market makers that connect buyers and sellers that prefer not to transact over public exchanges, often at a steep mark-up. These parties need to keep cryptocurrency inventory on-hand to meet demand. Since owning the cryptocurrency is very capital intensive and bears the risks of price volatility, OTC market makers will borrow from lenders such as BlockFi to facilitate their needs.
- Other businesses that need an inventory of cryptocurrency to provide their clients with liquidity. This category includes businesses such as cryptocurrency ATMs that keep the majority of their cryptocurrency assets in cold storage and need some level of liquidity to function on a daily basis.
Is BlockFi Safe?
Based on our research and conversations, BlockFi passes the safety test. Well, it’s about as safe as Gemini, its primary custodian. Gemini keeps 95% of its assets in cold storage and 5% in hot wallets that are insured by Aon.
Gemini is a licensed custodian and regulated by the NYDFS, and it recently received SOC2 compliance from Deloitte for their custody solution.
While BlockFi’s interest rates are appealing, it’s natural for cryptocurrency aficionados to be skeptical– and rightfully so, we tend to be a paranoid breed. That’s what this Blockfi review is for!
What happens to user funds during each of these scenarios? How are they protected?
Even if we trust a business, which there is little to indicate BlockFi can’t be trusted, the doomsday “what if’s” hold primary real estate in our brains.
We talked doomsday with the BlockFi team:
BlockFi gets hacked?: “Gemini is BlockFi’s primary custodian and BlockFi doesn’t hold private keys directly. Gemini keeps the vast majority of its assets in cold storage and is insured by Aon. Gemini is a licensed custodian and regulated by the NYDFS. They recently received SOC2 Type 1 compliance audit from Deloitte for their custody solution. We encourage users to read more about Gemini’s security. “
A user account is compromised?: “Since inception, BlockFi has not lost any customer funds. In the event that a user’s account is compromised, which our security protocols have caught in the past, we freeze the individual’s account for one week. Then, we conduct a Videoconference with the affected individual to verify their identity. We can then change their email address and password, so they can regain control of their account.”
Suddenly everyone defaults on their loans?: “When we lend crypto assets to generate yield, we have an extremely thorough risk management and credit analysis process. We only primarily lend to large, well-capitalized, institutional borrowers, or to counterparties willing to post collateral and provide the ability to margin call them on a 24/7 basis.”
“What that means is, if we are lending $1M worth of BTC to Firm XYZ, Firm XYZ collateralizes the loan (typically ~120%) by giving us ~$1.2M USD. If the loan were to then enter margin call and the borrower was unable to provide additional collateral (default), we would use their USD collateral to buy crypto.”
“We have actively lent since January of 2018, including throughout multiple periods of high volatility, without any losses across our entire lending portfolio. BlockFi is bound by NDA’s to discuss terms of specific borrowers/rates.”
How do I apply for a BlockFi Account?
Signing up for a BlockFi account is fairly effortless and can be done in under two minutes.
- You can start right from this BlockFi review. Go to the BlockFi website.
- Go to the “Earn Interest” option in the homepage slider, or “Get Started” in the menu.
- Enter your email and make a password to create your account.
- Enter the verification code sent to that email.
- Once logged in, select “Deposit” to verify your identity and make your first deposit.
- Enter your personal information for verification (part 1)
- Upload a form of ID such as a passport, driver’s license, or ID card and wait to be approved.
How do I get in contact with BlockFi Customer Service?
If you’d like to contact BlockFi customer service, you can reach them at [email protected].
So far, BlockFi support has been well above average. Let us know how your experience went was any different!
How is offering a 5.2% on BTC interest rate sustainable?
“The interest we are able to pay is based on the yield that we are able to generate from lending, which directly correlates to the market demand in the space (I.e. what rate institutions are willing to pay to borrow specific crypto assets, as it varies from asset to asset). We are bound by NDAs to discuss specifics (institutions, specific rates, etc).”
How about the 8.6% interest rate on Gemini Dollars? Can you talk about why Gemini?
“We are able to use stablecoin deposits to fund our consumer loans (average APR is ~10-13%) so we can afford to pay higher interest to GUSD / Stablecoin depositors.”
The BlockFi interest rate is subject to change on a monthly basis, could you explain why this is?
“Upcoming changes are announced typically 1-2 weeks prior to a new month, giving clients ample notice and time to prepare. The interest we are able to pay is a function of the borrowing demand.
What happens in the case of a BTC/ETH fork? Will a user’s balance be credited with the forked coin as well?
“Gemini is our custodian and has all of the information about what happens in the case of a forked network. Please refer to their user agreement here where you can read more about that.”
What does the future look like for BlockFi? How will this BlockFi Review be different in a year?
“We’re confident that we will become a very large and successful company that provides financial services on a global scale to the benefit of millions of clients. We plan on going through three distinct growth phases based on our addressable market and products:
- Phase 1
- Products for people who already own Bitcoin or another crypto asset that’s supported on BlockFi’s platform
- Ability to earn interest borrow USD secured by your crypto
- Phase 2
- Expand the addressable market to include people who don’t own cryptocurrency yet.
- Launch the ability to buy and sell on the platform and payments category products like a Bitcoin rewards credit card
- Phase 3
- Focus on global expansion and expand the addressable market to include users that may not ever want to own crypto
- Heavily utilize stablecoins to provide traditional banking products on blockchain rails
Final Thoughts: Is BlockFi Legit? Is BlockFi Worth It?
All of our indicators for this BlockFi review (history, team, communication with support, and business model evaluation) point to yes: BlockFi is legit. There is very little evidence that suggests otherwise. There are a handful of negative reviews online from disgruntled users, but they mostly seem to be rooted in misunderstanding (ie. assuming the interest was paid in USD and not in BTC/ETH/GUSD).
Whether or not BlockFi is worth it comes down to your risk profile and what you’re doing with your cryptocurrency.
If it’s just sitting on an exchange, you may as well reap the benefits of compounded interest. 10 BTC would turn into 10.62 BTC in a year, a not insignificant gain of around $5,000 for the year. You would also receive the benefits or tragedy of Bitcoin’s price going up or down.
However, it’s worth remembering that any time your cryptocurrency leaves your hard wallets, it’s exposed to a higher degree of risk. If BlockFi or Gemini were to experience some (highly unlikely) catastrophic hack, your cryptocurrency would be at risk.
Our BlockFi review comes back positive. After speaking with team representatives, and with their support team on the client-side, we look forward to seeing BlockFi establish itself further in the space. Projects such as BlockFi simply existing provide cryptocurrency investors a much-needed diversification of revenue streams, something that die-hard HODLers have missed through the past few years.
Editor’s Note/disclaimers: None of the above isn’t investment advice and is purely educational and entertainment.
Research: Altseason is Upon Us, But Not For XRP or EOS
In its latest ‘State of the Network’ bulletin, industry data provider Coin Metrics has delved into altcoins and their impressive performance so far this year.
It acknowledged that many of the hot altcoins that surged during the 2017 crypto boom are now ‘dead and gone’, and have been replaced by a new breed of DeFi assets. It added that with new capital flowing into Bitcoin and Ethereum, some of that money may start flowing into altcoins.
In this week’s State of the Network @natemaddrey looks at recent altcoin performance. Is a new altseason incoming?
Read the full issue here:https://t.co/pO4mmIPhby
— CoinMetrics.io (@coinmetrics) January 19, 2021
The report acknowledged that institutional investment has largely been behind the current rally and institutions are very wary of altcoins.
“Altcoin investing is largely considered a retail phenomenon. Similar to penny stocks, it’s often driven by individual investors looking for outsized gains.”
XRP and EOS Missing The Party
Looking at returns since the beginning of December 2020, Bitcoin and Ethereum have outperformed most other Layer 1 blockchains, it noted. However several high-cap crypto assets have also performed well hitting their own all-time highs.
There are two notable exceptions to this trend; Ripple’s XRP and Block.one’s EOS.
The glaring red charts for these to former darlings of crypto show that XRP has lost 54.6% since December 1, and EOS has dumped 7.5% over the same period.
Ripple’s problems started when it finally lost the battle with the SEC and the selloff began. Since its late November high of almost $0.70, XRP has dumped almost 60% to today’s sub $0.29 prices. There have been reports of Ripple executives selling their stashes, while Grayscale dissolved its XRP Trust as confidence in the company dwindles.
Block.one’s problems have not been as bad, but they have had them. Company CTO Dan Larimer announced his resignation earlier this month and there has been very little on the development or product front for the project.
Over the past year, EOS has lost 23% on a chart that has been flat for months. Since its February 2020 high of $5.40 it has dumped 50%, and since its giddy all-time high in April 2018 of over $22, EOS has been smashed 87%.
Top Altcoins so Far in 2021
Those that are enjoying the altseason sun include Polkadot, Binance Coin, Chainlink, and of course Ethereum, though it shouldn’t really be termed an altcoin any longer.
Coin Metrics highlighted Cardano, Decred, and Dogecoin as three that have made three figure gains since December one, outperforming Bitcoin itself.
Biden’s US Treasury Secretary Nominee Raises Concerns Over Crypto Terrorism Financing
Janet Yellen is keeping true to form as a crypto critic and has linked cryptocurrencies to terrorist financing and money laundering. Meanwhile, another report has emerged showing that virtual currencies only account for an insignificant proportion of global financial crimes.
Yellen Espouses Well-Worn Crypto FUD
Speaking during her virtual confirmation hearing before the U.S. Senate, Janet Yellen — President-elect Joe Biden’s nominee for the Treasury Department — identified cryptos as a concern in terms of terrorist financing and money laundering.
Doubling down on her anti-crypto rhetoric, Yellen remarked:
“I think many [cryptocurrencies] are used, at least in transactions sense, mainly for illicit financing and I think we really need to examine ways in which we can curtail their use and make sure that money laundering doesn’t occur through those channels.”
According to Yellen, if confirmed, her leadership of the Treasury Department will focus on dealing with crypto-related terrorism financing, adding:
“The technologies to accomplish this change over time and we need to make sure that our methods for dealing with these matters, with tech terrorist financing, change along with changing technology, cryptocurrencies are a particular concern.”
As previously reported by CryptoPotato, Yellen is a known crypto critic. Back in 2018, she described Bitcoin as “anything but useful.” She has also countered claims of BTC being a store of value.
Cryptocurrency Crime Grossly Overstated
Yellen’s remarks are a common refrain among members of the mainstream financial establishment. However, the entire record of crypto forensic investigations do not support the claim that virtual currencies are the preferred channel for criminals and terrorists.
As part of the highlights of its upcoming 2020 crypto crime report, blockchain intelligence firm revealed that criminal transactions in the cryptocurrency space fell to 0.34% in 2020. This figure represents an even smaller percentage than the 2.1% recorded in 2019.
Reacting to Yellen’s statements, several crypto stakeholders were quick to dismiss her claims with verifiable data. Morgan Creek digital co-founder Anthony Pompliano tweeted:
“Janet Yellen stated today that cryptocurrencies are concerning because of terrorist financing and money laundering. She forgot to mention that the US dollar is the choice currency of criminals around the world. The large banks launder more money than [the] entire Bitcoin market cap.”
Indeed, in its report from 2020, SWIFT revealed that crypto-related money laundering was only a drop in the ocean compared to the volume of dirty money funneled via banks. Back in May 2020, Chainalysis also issued a report debunking claims that terrorist group ISIS held $300 million in Bitcoin.
Featured image courtesy of CNBC.
3 reasons Bitcoin abruptly dropped by 7.4% overnight
The price of Bitcoin (BTC) dropped sharply from $37,800 to $35,000 overnight, liquidating $572 million worth of cryptocurrency futures positions.
There are three major reasons why the price of Bitcoin declined steeply in the past 12 hours. The reasons are an overheated derivatives market, growing doubt in the market, and the lack of upside volatility.
Derivatives market was overheated before the correction
Before the pullback occurred, the Bitcoin derivatives market was extremely overheated. The futures funding rate was hovering at around 0.1%, which is 10 times higher than the average 0.01%.
The futures funding rate is a mechanism that achieves balance in the futures market by incentivizing long or short contract holders based on market sentiment.
If there are more long contracts or buyers in the market, then the funding rate turns positive. If it becomes positive, then buyers have to compensate short-sellers with a portion of their contracts every eight hours, and vice versa.
Almost all major cryptocurrencies saw their funding rates spike to around 0.1% to 0.3%, which meant the market was extremely overleveraged.
When the market is this overcrowded, the likelihood of a long squeeze increases, which could cause many futures contracts to get liquidated in a short period.
Growing market uncertainty
According to researchers at Santiment, there is “trader doubt” in the market on whether BTC would hit $40,00 again. They wrote:
“Thinking face There is an increasing amount of trader doubt that #Bitcoin will revisit $40,000. But according to address activity and trade volume, the long-term trend still looks plenty healthy. Keep a close eye on whether $BTC’s usage rate stays propped up.”
The fundamentals of the Bitcoin blockchain network, such as address activity and trade volume, remain strong. However, the market sentiment has dwindled in the past week as BTC continues to struggle to break out of the $38,000 resistance area.
Lack of upside volatility
Bitcoin has been seeing weak reactions from buyers throughout the past several days, compared to the initial rally to $42,000 in early January.
During the early phase of the rally, whenever Bitcoin dipped to key support levels, like $35,000, there was often a big reaction from buyers.
However, since mid-January, there have been weaker reactions from buyers at key support levels. This indicates that the expectations of a rally toward the $40,000 to $42,000 resistance area have subsided, at least in the near term.
The selling pressure on Bitcoin mostly came from Asia in the first two weeks of January. But, as shown in the overnight correction on Jan. 19, Bitcoin has started to see weakness in the U.S. market as well.
The combination of limited upside volatility and the lack of upside momentum is seemingly causing traders to become cautious in the near term. This likely means that BTC sees a prolonged consolidation phase until February.
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