BlockFi

Earn more from your crypto

blockfi hodl bitcoin and get rewards, crypto backed loans

HODL And Get Paid

Many Bitcoin investors and crypto enthusiasts have just one strategy in mind. Buy & Hold (or better said, Buy & HODL). BlockFi lets you do that and encourages saving while earning interest on your coins. You'll receive interest on your deposited coins without any lock time. A number of bitcoin lending platforms and services exist on the web that pays interest for your cryptocurrencies. I've chosen BlockFi as one of my investment platforms. This platform seems reliable and secure, while also emerging and adapting to the market's demands. I will provide my insight on BlockFi and why I have decided to contribute some of my funds to this platform.

blockfi is a bitcoin lending provider to earn interest and free bitcoin on your cryptocurrencies

What Is BlockFi?

BlockFi is a platform that offers three main services:

  1. Crypto-backed loans - Deposit Bitcoin collateral and get a dollar-based loan.
  2. Bitcoin lending services - Deposit dollars and lend Bitcoin.
  3. Earn interest on your Bitcoin - Deposit Cryptocurrencies and earn yearly interest.
  4. Credit Card with Bitcoin reward points (launches soon)

Established in 2018 by Zac Prince and Flori Marquez, BlockFi has grown from its early $2.3M seed round to a whopping $300M Round D funding in early 2021, raising a total of over $508M, reaching a $3 Billion valuation. Backed from its early days by leading crypto investors, including investor and influencer Anthony Pompliano, BlockFi has become a well-established company, aiming at both consumers and large-cap institutions.

BlockFi allows you to benefit from the growing market of cryptocurrency, earn interest and keep it in safe custody. To clarify, they use Gemini, one of the leading US crypto exchanges, as their custodian and aim at becoming one of the leading financial providers in the crypto arena.

How Much Will BlockFi Pay Me?

The interest rates depend on the currency you deposit. Rates are not jaw-dropping since the higher the rate, the higher the risk. BlockFi aims for moderate-low risk, thus keeping it relatively low. The interest rates are APY (calculated yearly) but are paid to your account daily.

You can choose your preferred currency. If you deposit Bitcoin, you can get the interest in BTC or any other supported currency.

a list of APY for crypto coins offered by blockfi
BlockFi Yearly Interest rates (As of May 2021)

How Does BlockFi Work?

The Bitcoin ecosystem consists of different players. Some trade daily, some buy and hold, and some use it as a savings strategy. BlockFi started as one of the first companies to offer both individuals and institutions a way to lend and borrow cryptocurrencies using dollars as collateral. They were also pioneers in letting users borrow dollars using bitcoin as collateral.

Most, if not all, traditional banks will decline any loan requests when presented with Bitcoin as a guarantee. Imagine you own 2 bitcoin (~$100K as of Apr 2021), which you'd like to use as collateral for a loan. Unfortunately, banks will not regard it as a valid guarantee. However, BlockFi allows you to provide bitcoin and some other currencies as collateral. BlockFi's loans are either collateralized or overcollateralized, meaning that you have to deposit at a lean 1:1 or more ratio of funds before receiving a loan.

blockfi is a bitcoin lending provider to earn interest and free bitcoin on your cryptocurrencies

Additionally, BlockFi provides liquidity and bitcoin lending services for institutions and high-volume traders, which need to keep daily positions and trades. The bitcoin, or other coins, we deposit into BlockFi, support these activities, thus earning us yearly interest.

BlockFi will soon launch a new BlockFi credit card that's gonna be a crypto card. It a regular credit card that will work with dollars and other fiat money. However, instead of points, the rewards are going to be in bitcoin.

Dollar Loans For Bitcoin?!

One of the biggest questions when lending money is how to guarantee to get the money back. When taking a mortgage on a house, the bank uses the house as collateral. In case you default and cannot pay the mortgage, the bank takes it, sells, and repays the loan.

When BlockFi lends a dollar loan for $50K, let's say, they do the same with Bitcoin and use it as collateral. Their loans are either collateralized or overcollateralized. In other words, you have to deposit an equal or higher amount to the amount you lend in dollars.

What About Bitcoin's Volatility?

As we all know (or should at least), Bitcoin has a volatile nature. It can rise or plunge 20% a day16. Say you took a $50K loan and deposited 2 Bitcoin as collateral when Bitcoin's dollar rate was $50K for one Bitcoin. The next morning, Bitcoin drops to $40K. What happens with your loan now?

The key to understanding this is the LTV ratio (Loan to Value). LTV is the ratio between the loan and the base collateral asset. In the above case, we took $50K and deposited 2 Bitcoin each worth $50K, meaning our LTV is 50%. We took a loan that's half the value of the collateral. BlockFi offers loans between 20% (safer) and 50% (riskier).

Why is 50% riskier? Imagine bitcoin drops to $40K, your 2 Bitcoins are worth $80K, but you need to maintain 50% LTV.

In the case, prices drop and your loan reaches 60% to 75% LTV, you'll receive a margin call. A margin call is a notification telling you to deposit more funds to maintain your loan. In case you don't deposit within 72 hours, BlockFi will sell a portion of your collateral to remediate the LTV. When they use it, it's irreversible. Read more here about crypto-backed loan margins.

Why Do I Trust BlockFi?

  1. Backed by leading VCs - Recently raising over 300 Million dollars in round D, BlockFi is one of the largest companies in the field. This includes Anthony Pompliano, one of the leading and most influential crypto investors, who have invested in the company since its seed and in every round. Check out the full list of BlockFi's investors.
  2. Gemini Custodian Services - Gemini is an exchange and custodian with a rigorous set of security standards. They are also registered as fiduciary in the state of New York, which means they have to abide by some higher-level rules when it comes to asset storage. Gemini also has digital asset insurance coverage.
  3. Client Funds are Prioritized— BlockFi makes sure client funds are structured to be at the top of the capital stack even over BlockFi equity and employee capital. This means if the worse case happens, BlockFi will take a loss before any client funds would take a hit.
  4. Aiming at both the Institutional and Private Sectors - BlockFi provides services to small retail investors and bigger market makers and institutions. This raises the level of required trust and funding levels in general.

Online Presence, Podcasts, and Social Media

  1. One of my favorite Bitcoin podcasts, We Study Billionaires by Preston Pysh, recently interviews BlockFi's CEO for an in-depth interview.
  2. I follow Zack Prince on Twitter, and you can see what he's up to and stay up to date.
  3. BlockFi scores relatively high on TrustPilot, with most reviews at 5 stars.
blockfi reviews on trustpilot
BlockFi review on TrustPilot is fairly high at 4.1 stars

What are people complaining about?

Mostly long withdrawal times and long verification process. As BlockFi is a custody service, they are not apt for quick withdrawal. Think of it more like a savings account. Don't store funds you need immediately (by same day immediate) funds. Apart from that, most people's review is as positive as mine.

What Are The Risks?

  1. Not your keys, not your coin. As with every crypto service, the moment coins leave your wallet, you're at some risk. Your coins will be stored in custody, provided by Gemini, one of the largest and most accredited exchanges in the united states. Having said that, there's still a risk that something will happen to the exchange, and you will lose your coins. As BlockFi and Gemini are well-established companies, the chance for this to happen is relatively small but should be considered when allocating your funds.
  2. Not FDIC insured (Federal Deposits Insurance Corporation). This is federal insurance meant to back up investors' funds in case of a crisis. In other words, this insurance covers banking services or custody providers in the US. This means that if the worst happens, you need to trust the platform without federal backing.
  3. Long Withdrawal time. The biggest complaint about BlockFi is the long withdrawal times. Don't store money that you need for immediate usage, for me, it's a long-term savings account, so I don't really mind.

Savings at BlockFi: Conclusion

I’ve been using BlockFi for several months now, and in my experience, it is a great way to diversify your funds and coins while earning yearly interest. Particularly, I like the fact that it’s well established, backed by large investors, and aims at becoming a crypto bank. Personally, I am not eager on storing all my cryptocurrencies in one place (even if they are stored offline), so I prefer to diversify some of my funds between different providers who offer competitive rates of return on investments. When considering this platform you should weigh the risks associated with them against what level of investment you want or need.

Want to know more about BlockFi? Start now and learn about the new generation of savings!

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