Are you a native crypto user? Or perhaps you're curious about digital currency investing? If so, you've likely heard of BlockFi, one of the most popular exchanges in the industry today.
The BlockFi website offers institutional-grade financial products to crypto markets. These institutions include market makers, hedge funds, and more.
What do these institutions have in common? They want to invest in cryptos but can't get the financial support they need from traditional banking institutions.
Fortunately, BlockFi strives to provide institutional clients with low-cost, simple applications to maximize the potential of crypto assets. In the process, they offer impressive yields to individuals willing to open a savings account in crypto.
In this BlockFi review, we'll take a closer look at this incredible FinTech company and how it continues to redefine and reshape digital asset lending.
What Is BlockFi?
BlockFi empowers its clients to borrow cash and cryptocurrency, earn interest with savings accounts, and trade cryptos from the most trusted financial service providers in the industry. There are several ways BlockFi has placed its services head and shoulders above the competition.
An independently-owned lender, BlockFi offers clients many benefits and is backed by financial giants like SoFi and Fidelity. As a result, BlockFi offers a roster of products reflecting those you’d enjoy at a large corporate bank.
It's no exaggeration to say that BlockFi has gone the extra mile to protect its clients by adhering to American law and financial regulations. Yet, the company remains independent to provide the best rates.
It works with well-established institutions to ensure its customers' assets consistently perform at optimal levels.
BlockFi's diversified approach means customer assets remain safe. The platform guarantees you can always easily access your funds because a large amount of collateral secures them.
BlockFi: Products Offered
Which products are offered by BlockFi? They include:
A forthcoming Bitcoin Rewards Credit Card
Let's deep dive into each of these products and why they might prove attractive to consumers like you.
BlockFi Interest Account
What do you get with the BlockFi Interest Account (BIA)? It allows consumers to maximize their cryptocurrency balances. When you deposit your crypto into an account, your balance will appreciate while earning you interest.
Which kinds of rates can you expect with BlockFi? BlockFi offers 8.6 percent on stablecoins and up to six percent on Bitcoin (BTC).
Not sure what stablecoins are? Click here to find out more.
The account is free to use, and no minimum balance requirements apply.
What's more, you can open an account in just a few simple steps. Provide your information and fund your account with crypto or stablecoin. Then, begin earning monthly interest on your account in the cryptocurrency of your choice (e.g., Bitcoin (BTC), PAX Gold (PAXG), Litecoin (LTC), Ethereum (ETH), or stablecoin such as GUSD).
Customers can use BlockFi’s interest calculator to see how much they stand to earn on a given cryptocurrency balance within a certain period. Your assets and data remain under lock and key with BlockFi so that you can invest crypto without concerns over your funds' safety.
BlockFi Withdrawal Limits and Fees
It's worth noting BlockFi's withdrawal limits and fees. This is unique to CeFi platforms like BlockFi and they put it in place for a variety of reasons, including platform liquidity, platform costs and user security.
All clients can have up to one free crypto or stablecoin withdrawal per month. Each free withdrawal is only applicable to one currency per month. Each additional withdrawal is subject to applicable fees.
The fees themselves vary, per currency, however, in most cases it's around $10 USD.
What does BlockFi trading let customers do? When you go with this product, you can trade amongst your various crypto assets within the BlockFi interface. In the process, you'll enjoy a seamless experience.
BlockFi trading permits you to continue earning interest on assets during the process. Select the currency you want to receive and pay with to trade. Then, you’ll enter the amount you’re looking to purchase. Hit swap and then trade your fiat currency.
With a BlockFi trading account, you'll enjoy no fees. That means you can trade without hidden fees, and the price you see for a trade is what you pay.
With BlockFi, you'll also enjoy flexibility. This permits you to trade and exchange popular cryptocurrencies.
What's more, you can start trading the instant your account gets funded with crypto. And you'll earn interest as you complete trades.
What's another fantastic BlockFi feature? The relaxed liquidity of your crypto assets through its crypto-backed loans. Instead of offloading Bitcoin for quick cash, you can borrow up to 50 percent of your crypto value from BlockFi.
Each loan gets borrowed against your crypto balance at rates as low as 4.5 percent. Your collateral size and rate requirement will vary depending on the loan amount and the crypto you choose to back your loan.
You can use these loans to expand and diversify your portfolio. How? By using your funds to invest in more digital assets.
The returns you see may outweigh what you pay in interest. As a result, it represents smart strategy to build your wealth while optimizing growth and decreasing your risk.
You’ll have the loan on the day BlockFi receives your required collateral as a customer. It's that simple. And you can pay back your balance as early as you’d like without any prepayment fees.
Forthcoming Bitcoin Rewards Credit Card
BlockFi is in the process of releasing a Bitcoin Rewards Credit Card, and the waitlist continues to grow. The card will earn you 1.5 percent in Bitcoin returns on purchases.
When you sign up for and use a BlockFi interest account, you'll gain access to the Bitcoin Rewards Credit Card waitlist. The card’s release is slated for 2021 and will be rolled out to US residents in a limited number of states. Go here to get on the waitlist.
Besides a basic description of what BlockFi is and the products it offers, what else do you need to know about this platform? Let's start by exploring the company's founder and his unique vision.
How BlockFi Handles Liquidity
The liquidity profile of assets used as collateral in BlockFi is dramatically better than a house or even securities. Trading happens 24/7/365 globally.
It occurs across both odd and derivative exchanges with real over-the-counter institution-to-institution volume. BlockFi stays connected to all of the venues where liquidity is available.
Let's say you deposit Bitcoin, and it gets turned into cash stable USDC and lent out. Does this alter your asset's currency? No, the escrow held on your behalf remains in the token in which you deposited it.
BlockFi will never take Bitcoin denominated liability on a balance sheet and convert it into another asset, hoping it'll generate the same return as BTC. The assets and liabilities match what's deposited into the account.
The Need for a Crypto Lending Service
When Zac Prince started BlockFi, he felt passionate about the future of digital currencies. But he also saw a huge gap that needed to be bridged. This "huge gap" existed because traditional banks failed to take steps towards financing crypto transactions.
Prince realized customer service must remain central to his approach. He understood something critical about the future of cryptos. From the user's perspective, a digital lending platform such as BlockFi must feel similar to a traditional lending platform while offering breathtakingly BETTER interest rates (upwards of six percent).
In a nutshell, the traditional feel of BlockFi's front end must raise consumer confidence through familiarity. But on the back end, a variety of functions would take place that consumers might not fully understand.
A Financial Shift
In early 2017, a vital financial shift was in progress. Traditional banking systems wouldn't be able to sustain themselves within this climate forever. So, Prince determined to get involved in the ecosystem.
He'd already started buying cryptocurrencies and heading down the decentralized rabbit hole. But he had yet to dive into the crypto universe in any material way.
What did Prince envision as he started to lay the groundwork for BlockFi? A debt and credit market for the crypto asset class.
Prince had plenty of experience working with banks and lending services, and he realized they had largely missed the opportunities afforded by cryptos.
Yet, he recognized the incredible potential for this budding ecosystem. One where assets could be moved instantaneously worldwide 24/7/365.
The Birth of BlockFi
In 2018, Prince started with US dollar loans, offering them to customers who wanted to make money on their crypto assets without selling them. BlockFi became the first company to get lending licenses across the United States.
It also became the first company to raise institutional capital to support crypto-lending. Over time, Prince listened to the market, diversifying BlockFi's products to meet its growing customer needs.
As a result, BlockFi expanded into areas where demand proved highest. Because Prince understood that the legacy system wasn't going to change unless it had to change, he decided to make BlockFi a catalyst for this change.
How did his innovative approach to lending cryptos work? The answer to this question requires learning about the behind-the-scenes operations at lending platforms such as BlockFi.
Behind-the-Scenes Operations at BlockFi
A customer's relationship with BlockFi starts with a Bitcoin deposit. Once made, this deposit gets co-mingled with other assets managed through one of BlockFi's custodians.
The platform relies on three custodian services, considered the best on the planet. They include:
Gemini, BlockFi's primary custody platform
What criteria did Prince and his team use to pick these custodians? BlockFi's team looked at each company's operating history, whether they'd been audited, their insurance level, etc.
After assets deposited at BlockFi become available for different lending activities, these activities generate the platform's yield to clients.
The Kinds of Loans Offered at BlockFi
Fundamentally, there are two kinds of loans offered at BlockFi. They include:
Almost all loans on the platform fall into the first category, overcollateralized loans.
What are overcollateralized loans? For example, to borrow one BTC with BlockFi, you must deposit 1.5 or two BTC's worth of value in USD or BTC. If the price of collateral drops, you'll receive a margin call. That way, the overcollateralization protects the crypto lender.
What happens if a loan gets down to the price of parity and the borrower doesn't step in to replenish their escrow? The account gets liquidated, and the lender retains the original value of their BTC.
As you can see, the lender remains well-protected throughout the process. Yet, they still enjoy the potential of earning high yields.
How about undercollateralized loans? There are no more than 50 institutions that make the cut. These organizations have stellar financial reputations and a proven history of working with BlockFi.
How BlockFi Loans Work
Today, BlockFi offers loans to individuals holding BTC on their platform, borrowing dollars at a 50 percent loan-to-value (LTV) ratio secured by BTC.
BlockFi also offers other loans where customers hold dollars for collateral in BTC. If their Bitcoin moves down, those who borrow dollars secured by BTC will go through the same warnings, margin call, and eventual liquidation.
In other words, if you want to take a loan out on a home that's fully paid off, overcollateralization means you can only borrow 1/3 of the property's value. This protects your property.
What if you take out a one-third loan on your home? And there's a meltdown of the real estate market and it's approaching parity? With traditional banking, you can't step in to sell it to protect the loan's value.
But with BlockFi, you can. Why? Because trading occurs 24/7 worldwide. It's totally different from anything else that exists in traditional finance.
And it gives investors a huge leg up. After all, waiting for traditional banking systems incurs major risks. But you'll never experience this wait with BlockFi.
What to Know About Overcollateralized Loans
If you're still somewhat new to cryptos, you may wonder what type of person would put up double the collateral of what they're borrowing? Why would they pay nine percent interest in the process?
According to Prince, the person putting up BTC to borrow money is generally an institution. Or it may be someone who has held BTC for a while but is still bullish about the future of BTC and has liquidity needs.
Overcollateralized loans permit institutions and individuals to HODL these assets without the tax burden.
After all, if your cost base on BTC is shallow, paying between 25 and 50 percent in taxes on a large part of your assets represents a costly way to finance something. This proves especially true for a loan you'd only use for a few months.
But when you're using the loan proceeds to make another investment, the tax code is very favorable to debt financing. You can generally deduct the proceeds cost of that interest as an investment interest expense deduction.
What BlockFi Accepts as Collateral
As a general rule, BlockFi doesn't accept cryptos as collateral for BTC-denominated loans. But it does accept:
Dollars in bank accounts
Shares of the GBTC trust
Equity value in a fidelity digital assets account
These assets and liabilities are always 100 percent matched in all BlockFi activities. In 2020, the company became the first lender to integrate into the FDIC environment.
The Institutions That Borrow from BlockFi
What else do you need to know about overcollateralized BlockFi loans? Institutions borrow BTC from BlockFi because they're involved in the crypto market and can't finance this traditional activity with their traditional prime brokers.
Which types of institutions take out these loans? They include market-making firms, trading firms, hedge funds, and other types of active institutions in the crypto market.
But these are also institutions that remain unsupported by traditional banking infrastructure when it comes to their crypto investing activities. Many different venues exist where cryptos get traded, including:
Spot foreign exchanges
Latin American-based exchanges
Unlike DeFi, BlockFi can use its own equity capital to hedge extreme volatility when risk signals flash. The company has even retained earnings put at risk to allow customers more time to react to margin calls in the past. In the process, they've earned a loyal following of individual lenders and institutional borrowers.
There is insurance available from BlockFi's custodians for the assets held with the company. What's more, a minimum of 20 percent of client assets sit in custody at all times, but it's often much higher than that.
This permits BlockFi to protect against cybersecurity issues and employee theft with a custodian. But there's no insurance today to protect against losses incurred with the lending activities that BlockFi does.
According to Prince, BlockFi's team is always thinking of ways to bring insurance to the table, but it's cost-prohibitive to clients' yield. The company plans on changing this in the future, but they don't know how long it will take.
Over time, BlockFi plans on having different flavors or levels of risk accounts and associated yields on the platform.
Is BlockFi Safe to Use?
The BlockFi website offers 2-factor authentication and the site has never experienced any security issues to-date. All assets are not stored with BlockFi. Gemini Custody store all digital assets on behalf of BlockFi. They use industry-leading cold storage solutions that are insured. BlockFi, together with Gemini Custody offer very high standards of security for your digital assets.
How BlockFi Mitigates Risk
On March 12, 2020, the day after BTC went down 50 percent, it was still business as usual at BlockFi. What permitted the company to weather this storm? Overcollateralization.
Although many other companies weren't actively lending, BlockFi was open the whole time. The company's risk system performed perfectly. For crypto exchanges, the hard part isn't whether the risk system works well. Instead, it's a matter of delivering the best customer experiences, even in the context of market volatility.
The company goes the extra mile, forging strong customer relationships that will go the distance. BlockFi believes the platform will keep growing and adding more value to clients. The company remains committed to earning and keeping clients for life, which Prince notes is far more important than a single day of trading.
How BlockFi Makes Money
BlockFi allows people to earn some of the best interest rates of Bitcoin and other cryptocurrencies, so it's only natural that you ask how they make money. BlockFi turns its profit on spreads between interest accounts and loan systems. They take a cut from the difference between the interest on loans and the interest given to the lenders.
As mentioned earlier, the platform allows users to borrow BTC up to 9.75%, and those with interest accounts only receive, anywhere from 3 to 6% on the same BTC holdings. You can do the math, and see that's a pretty great margin, helping contribute to risk management.
Interest payments are made monthly, compounding and in the cryptocurrency of your choice.
Can I earn interest on fiat currency with BlockFi?
BlockFi doesn’t pay interest on fiat currencies, however, they do offer up to 8.6% APR on GUSD. GUSD is a stablecoin backed by US Dollars. This means that for every GUSD, it is backed by one USD. This is a great option for people who want the stability of a fiat currency like USD, but the savings interest rates of crypto currency.
Which countries does BlockFi support?
The BlockFi Interest Account isn't available to sanctioned or watchlist countries. It's also not available in New York, Connecticut, Washington, and Wyoming. BlockFi is available everywhere else.
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BlockFi Review: The Takeaway
When it's all said and done, who is BlockFi for? Crypto native clients who own Bitcoin and devour crypto literacy content like there's no tomorrow. BlockFi’s platform can help these customers take their crypto assets to the next level.
But the platform is also suited for crypto clients who dabble in buying digital assets. BlockFi can help these individuals take their crypto trading and investing activities to the next level.
Last but not least, if you’re interested in Bitcoin and willing to devote some serious effort to learning about it, BlockFi’s crypto-asset platform might be an excellent entry point for you. But be prepared for a serious learning curve.
Of course, you should explore options beyond this BlockFi review before choosing a platform. Check out our comprehensive list of CeFi and Defi platforms that offer crypto loans, lending, credit cards, debits cards, and more to get started.