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Founded in 2017, BlockFi is a crypto lending startup that is redefining the way consumers utilize cryptocurrencies, such as Bitcoin, Etherium, and other digital assets.
BlockFi offers consumers financial technology that enables them to make clear decisions, risk management, and digital financing solutions.
Dive into our BlockFi Review to see how this pro-crypto startup is shaking the entire financial industry, and whether it is of value to you.
|APY||Up to 8.60%|
|Annual Fee(s):||$200 (Credit Card)|
|Mobile App:||iOS & Android|
What is BlockFi?
BlockFi is bridging the gap between the cryptocurrency space and the traditional financial industry. The fintech company was founded in 2017 by Zac Prince and Flori Marquez to enable crypto owners to do more with their digital assets.
They wanted you to be able to earn interest on your crypto and unlock your gains without selling your crypto assets.
BlockFi wanted you to be able to earn Bitcoin rewards instead of airline miles when you use your credit card.
And we have good news. They’ve brought all of these ideas to life. Backed by some of the largest plays in the FinTech and Crypto Industry, BlockFi is here to stay and is ready to disrupt the entire industry for the better.
- Robust Crypto Trading Platform
- High-Yield Interest Savings Account
- Crypto-Backed Loans
- Bitcoin Rewards Credit Card
BlockFi’s product suite includes a trading platform, high yielding interest accounts, crypto-backed loans, and a Bitcoin rewards credit card.
Keep reading to learn about BlockFi’s innovation in the cryptocurrency space.
BlockFi Trading Platform: What Crypto Can You Trade?
You can buy and sell all kinds of crypto on BlockFi’s easy to use mobile app and can exchange between Bitcoin, Ethereum, Litecoin, USD Coin, Tether, Gemini Dollar, PAX, and PAXG with BlockFi Trading.
There are no account minimums, and you won’t be paying fees on BlockFi’s platform. You only pay the price displayed for the trade and nothing more!
Crypto is the one market that still makes users pay aggressive fees to buy and sell assets. Trading fees on CoinBase, PayPal, and Square range between 1-3%.
BlockFi believes commission-free trading is an inevitable part of crypto’s future, and they decided to hit the fast forward button.
Just like Robinhood’s commission-free equity trading forced the rest of the industry to cut fees, BlockFi is leading the charge for the crypto fintech sector.
BlockFi also allows you to set up recurring transfers to automate your crypto investing on a daily, weekly, or monthly basis.
Just set the frequency, amount of stable coin to sell, and which cryptocurrency you want to buy. It’s that simple.
Also, you will earn compound interest while trading! We will cover BlockFi’s revolutionary Interest Accounts next.
BlockFi Interest Account
BlockFi’s Interest Account is nothing short of mind-blowing. You can earn up to 8.6% interest on your assets in their Interest Account.
That may seem too good to be true, but we’ll explain how BlockFi can offer such impressive rates compared to Marcus by Goldman Sachs’ “high yield savings account” that’s netting me 0.50% as of this writing.
First, you don’t have to buy Bitcoin on BlockFi to get the 8.6% interest. That’s right, you can keep your assets in cash on BlockFi and choose the currency you want to receive your monthly interest in.
Whether you prefer Bitcoin, Ether, Cash, or another cryptocurrency, BlockFi’s Interest Payment Flex option makes it entirely up to you!
For example, someone who wants to capture the 8.6% yield on cash can automatically dollar cost average their interest into bitcoin.
On the contrary, someone who owns a lot of Bitcoin can earn interest on it, but Payment Flex lets them convert the interest into cash every month. Now, their Bitcoin enables them to earn a passive income in US dollars.
So, how does this work? The cash that you deposit sits on their platform as a “stablecoin,” which is a cryptocurrency that is pegged to or backed by a currency’s value.
There are dozens of stablecoins, but only a few are widely used. BlockFi has USDC (pegged to the US dollar), GUSD (pegged to the Gemini Dollar), and PAX (pegged to gold).
These stablecoins enable you to switch between the cryptocurrencies efficiently. You can withdraw these stablecoins back out into your bank account in the form of US dollars or use them to buy crypto on BlockFi’s platform.
Liquidity is daily, so you can deposit cash on BlockFi and withdraw it back into your bank account a day later.
How does interest work when you switch between cryptocurrencies?
There is no settlement time on trades. The trades you make will be immediately reflected in your account balance, and the interest you earn will be adjusted accordingly.
For example, if you deposit 1 BTC on December 1st and convert BTC to ETH on the 15th, you will earn ~14 days’ worth of BTC interest and ~16 days’ worth of ETH interest when you receive your interest payment on January 1st.
BlockFi’s Interest Rates are tier-based depending on the amount and type of crypto you choose to accrue your interest in.
What is the Catch – How do they offer 8.6%?
BlockFi’s biggest clients are high-frequency trading firms that arbitrage the Bitcoin futures market relative to the spot price of Bitcoin. For example, say Bitcoin is trading at a higher price in the futures market.
These firms will sell their futures, buy the spot, wait until the futures contracts expire, and then collect the implied yield when the two prices converge.
These trading firms are capitalizing on an implied yield of +10% annually due to these price differences.
Why does this happen? The crypto industry does not have access to traditional financing sources like banks and brokerage firms where you can borrow money at low single-digit rates.
This results in the rates in the cryptocurrency sector being much higher, and BlockFi is taking advantage of that. Later in this article, we will discuss how BlockFi generates revenue in more detail.
Unfortunately, BlockFi’s Interest Account is not available for New York residence. Zac Prince, BlockFi CEO, advises users to not treat this as a classic savings account due to crypto’s volatility.
BlockFi Crypto-backed Loan
BlockFi’s mission is to enable people to do more with their digital assets, and this motivation comes from an organic source.
BlockFi’s CEO experienced friction when applying for loans because his crypto assets weren’t being considered as collateral. So, he built a product that fixed this problem. Let’s dive into BlockFi’s Crypto-backed loans.
BlockFi’s crypto-backed loan allows you to post crypto as collateral and borrow US dollars against it.
This revolutionary feature allows you to unlock capital without having to sell your assets and pay the taxman!
Or if you don’t want to sell your crypto because you think it has more room to run, you can still put your gains to work by taking out a loan with BlockFi.
The interest rate you pay depends on the amount of collateral you post, and which LTV (Loan to Value Ratio) you choose.
LTV (%) = Loan Amount ÷ Value of Collateral
BlockFi’s risk department classifies their LTVs as “sufficiently conservative” enough to give their clients a buffer in the event of market volatility.
Margin calls work the same on BlockFi as other financial services. If the value of your collateral falls below minimums, you will be required to post more.
BlockFi has provided examples of a US client taking a $10,000 loan at varying rates and LTV ratios:
- 50% LTV at 9.75% Interest – requires ~$20,000 in crypto as collateral
- 35% LTV at 7.9% Interest – requires ~$33,000 in crypto as collateral
- 20% LTV at 4.5% Interest – requires ~$50,000 in crypto as collateral
Their loans are structured for a term of 12 months, and once your loan is fully paid off, the collateral you posted will be transferred back into your Interest Account.
BlockFi reserves the right to change their loan fees due to market events but has not done so since their company’s inception.
Bitcoin Rewards Credit Card
Crypto startup BlockFi is partnering with the credit behemoth Visa Inc to launch a BlockFi Rewards credit card in the Spring of 2021.
This will be the first time the Bitcoin logo is physically printed on a credit card. BlockFi’s partnership with traditional finance is a huge step for the Bitcoin community, as the traditional industry continues to bet on crypto.
BlockFi is the latest in a series of cryptocurrency ventures Visa has recently launched. The traditional credit company has partnered with Coinbase and Fold earlier this year to tap into the growing crypto space.
BlockFi’s credit card will offer 1.5% “cash back” in terms of Bitcoin that will be deposited into your BlockFi account. If a user spends more than $3,000 in the first three months, they will receive a $250 bonus in Bitcoin. The card comes with an annual fee of $200.
The credit is denominated in dollars, so you’re spending dollars. You don’t pay anything if you pay off your balance every month, just like your traditional credit card.
Depending on your fiscal responsibility, your credit score will be impacted positively or negatively when using the BlockFi credit card.
Imagine using your credit card to buy ice cream and it turning into one of the best investments of your lifetime.
That is the sheer opportunity BlockFi exploits and offers consumers. Only time will tell how this plays out. As of this writing, Bitcoin is up 160% YTD.
If you’re an existing BlockFi customer with a funded account, you can join the waiting list today. The list will be available to the public in January 2021, and the first round of cards will ship out in Spring 2021.
To date, BlockFi already has 50,000 individuals signed up for their industry-shaking credit card.
>> More: BlockFi Credit Card Review
Is BlockFi Safe?
They are the only fintech brand in the crypto space that has attained institutional backing at their scale. BlockFi has partnered with the Winklevoss Twins’s company Gemini to serve as its custodian.
Security is Gemini’s main feature, as it’s a licensed custodian and regulated by the New York State Department of Financial Services.
Gemini is also the world’s first crypto custodian to pass the highest level of security and compliance testing — the SOC 2 administered by Deloitte.
Additionally, Gemini keeps 95% of its assets in cold storage and 5% in hot wallets that are insured by Aon.
Since FDIC insurance doesn’t apply to digital assets, your deposits are not directly insured on BlockFi.
Fortunately, Gemini has its own insurance for its deposits, so your assets are covered.
Who is Funding BlockFi?
BlockFi closed its Series A, B, and C funding all in 12 months. Fret not, BlockFi is backed by the biggest names in the crypto ecosystem, including Winklevoss Capital, Anthony Pompliano’s Morgan Creek Digital, Peter Thiel-backed Valar Ventures, and even NBA player Matthew Dellavedova.
BlockFi’s seen its revenue 10x over the past year and is projecting $100M in revenue over the next year.
How Does BlockFi Make Money
This section will further explain how BlockFi can offer such attractive rates. As of this writing, there is $3.7B in assets on BlockFi’s platform.
At any given time, 60-70% of those assets are lent out, and BlockFi is earning around 9% on those loans.As you can see, this is the business.
Example of BlockFi Loaning to a Trading Firm
How the borrowing of these institutions work, is that the loan is denominated in the asset that they lend. So, if Axe Cap is borrowing from Blockfi, that Bitcoin loan is denominated in Bitcoin.
If Axe Cap borrows 100 BTC from BlockFi at 9% interest rate, after a year, they owe BlockFi 109 BTC. If the price of BTC goes down, they actually owe BlockFi less bitcoin.
What Are Trading Firms Doing with All That Bitcoin?
The crypto industry is fragmented, and its exchanges are not all connected like they are in the regulated securities world. Equity markets have central clearing and the same concepts of price discovery, while crypto does not.
This results in price variation amongst the crypto exchanges. The spot price of Bitcoin on CoinBase might be different than Gemini’s price. Sometimes, the disparity could be as large as $10 for a period of time.
So, a high-frequency crypto firm will have an account on all the different platforms. Essentially, they act like market makers across these exchanges where prices may vary by buying and selling these price deviations.
Arbitrage is the second strategy that institutions borrowing from BlockFi pursue. Specifically, arbitraging premiums in publicly traded products like Grayscale (ticker: GBTC). Side Note: Grayscale owns 2.5% of all the Bitcoin in circulation.
GBTC is a trust that holds Bitcoin and allows investors in the equity markets to get exposure to the digital asset. The trust often trades at a premium to NAV (Net Asset Value) of 10-30%
Net Asset Value of Bitcoin
What’s NAV? If the market price is higher than the Net Asset Value of Bitcoin in this case, the trust is said to be trading at a “premium to NAV.” If the price is lower, it is trading at a discount to NAV.
So, the institutions that borrow from BlockFi create new shares of that trust, wait until those shares become liquid, and then sell them into the market to try and bring that premium closer to NAV.
The third way these institutions benefit from Bitcoin lending is another form of arbitrage that we previously discussed: trading the difference between the Bitcoin futures curve and the spot price.
How to Open a BlockFi Crypto Account
You can go to BlockFi.com or download their four-star mobile app to get started. Their website is filled with resources to answer any questions that we didn’t answer in this article.
How to Fund Your BlockFi Account
You can fund your BlockFi account directly from your crypto wallet or from your bank account via wire transfers or ACH. BlockFi uses the financial service company Plaid to make funding your account simple and secure.
In Q1 2021, a recurring deposit feature will be added where you can set a certain amount of cash to come out of your bank account to be deposited into your BlockFi account.
You will also have the option for the deposited cash to automatically purchase Bitcoin, Ethereum, or another crypto asset.
Can You Open a BlockFi Account For Your Kids?
No. BlockFi does not have support for accounts in the name of a minor, but they are working on adding this feature.
Can You Open a BlockFi Account As A Trust?
Yes, they support accounts held in the name of a trust. If you have a trust set up, BlockFi allows you to open an account in a trust.
Bottom Line: BlockFi Review
As you can see, BlockFi is redefining the financial industry. They are merging the way traditional banking works and crypto.
Together, they enable consumers to do more with their digital assets. This is the pinnacle of financial innovation.