Last Update – September 2020
Is earning interest on your crypto too good to be true? In case you haven’t been paying attention to the crypto space lately, you might have missed the fact that crypto interest accounts are popping up left and right.
In other words, you can earn interest on your crypto simply by depositing your cryptocurrencies with these companies. Custodial crypto interest accounts offer very compelling returns on your idle crypto capital, so let’s try to have a look under the hood at one of the most popular crypto interest account providers!
We had been curious ourselves to dabble with a cryptocurrency interest accounts and start earning interest on our crypto. So we thought we’d give try out a cryptocurrency interest account with an initial crypto deposit and we’d like to share our findings.
Today in this review, we’re going to have a deeper look at BlockFi. At the time of writing, BlockFi is offering up to 8.6% in compounded interest per year on the cryptocurrencies you deposit with them in their ‘BlockFi Interest account’.
In this BlockFi review, we are going to cover the following:
- Who is ‘BlockFi’
- What kind of financial products is BlockFi offering?
- What are the interest rates on Bitcoin, Litecoin, Ethereum, PAX, GUSD, USDC with BlockFi?
- What about risks & safety? Is BlockFi safe? Can I trust BlockFi?
- How does a BlockFi cryptocurrency interest account work? What are the features of the crypto interest account?
- How can you get started with a BlockFi account? Sign up with BlockFi, deposit crypto & earn interest?
Who is BlockFi and what are they offering?
Founders & Backers
BlockFi was founded in 2017 by Zac Prince and Flori Marquez. Today BlockFi is offering crypto interest accounts, lending services, and crypto trading. In this BlockFi review, we are mainly going to focus on their BlockFi Interest account (BIA) and check out how you can earn interest on your cryptocurrency.
In comparison to other crypto interest account providers like “Celsius.network”, BlockFi was not funded through an ICO and there isn’t any token connected to providing their services.
According to data found at Crunchbase, BlockFi has raised a total of $108.7 million USD as a private company. The venture capital funding was provided by the likes of Winklevoss Capital, Valar Ventures, Galaxy Digital, Morgan Creek Digital, Three Arrows Capital, Fidelity Investments, Coinbase, etc…
The raised amount and quality of institutional backing does indicate that the VC backers are confident in BlockFi’s ability to become a successful venture. While this doesn’t mean they will be, it does tell us that the BlockFi team, business plan, balance sheet, and company structure have been duly scrutinized.
Valar Ventures, for example, is a venture capital fund founded by none other than Andrew McCormack, James Fitzgerald, and Peter Thiel. The latter was PayPal co-founder and earliest outside investor in Facebook. Winklevoss Capital is obviously founded by the Winklevoss twins is another strong endorsement of one of the most prominent voices in the cryptocurrency and blockchain space. The Winklevoss twins famously invested part of their settlement with Facebook in Bitcoin in 2013 and are now also founders/owners of the Gemini Exchange.
What type of products is BlockFi offering?
As a crypto-focused wealth management platform, the current BlockFi products are:
- BlockFi Interest Account (BIA): Custodial crypto deposit account with high-yield interest, allowing you to earn interest on your cryptocurrency deposits.
- Crypto Loans: Deposit your crypto (BTC, ETH, and LTC supported) and take out a loan against your deposit.
- Trading – Exchange service: Recently they started offering the option to exchange cryptocurrencies.
- Institutional lending: With their institutional customizable lending products, they offer institutions the possibility to lend cryptocurrencies, stable coins, and USD.
As mentioned before, in this BlockFi review we’ll especially focus on the BlockFi crypto interest account and discuss its features, usability, safety, and so on.
Looking into the near future, we can expect BlockFi to launch a mobile app and it has a crypto debit card planned sooner rather than later.
Breaking down the BlockFi interest account - Crypto Interest rates and safety
Comparing Crypto interest rates - Earning interest on crypto!
BlockFi is currently offering you to earn interest on Bitcoin (BTC), Ethereum (ETH), and Litecoin (LTC). They also offer a high-yield interest on stable coins USDC, GUSD, and PAX. If you look in the table below, you’ll see that they are offering excellent, very competitive rates on their BlockFi interest accounts. At this time, we would think the toss-up is between BlockFi and Celsius.Network if we only consider the offered rates.
As many platforms only offer interest on Bitcoin, we thought it might be good to have those rates head to head. If you want to exclusively compare Bitcoin interest rates between different platforms, you can check them in the article “Best Bitcoin Interest Account“.
If you compare these crypto interest rates to the rates found on other platforms, we conclude that these rates are very competitive compared to many other offers in the market.
However, we should note that BlockFi does have a different, lower interest bracket for BTC if you are planning to deposit more than 2.5 BTC. You are effectively getting a higher interest rate if your deposit is lower than 2.5 BTC. If your BTC deposit would surpass 5 BTC the annual percentage yield (APY) drops significantly to 3.2%.
How does BlockFi offer these kinds of interest rates?
What is the BlockFi Business model? How can it allow your to earn up to 8.6% on your crypto?
BlockFi’s main business is to lend out crypto asset-backed loans to private individuals and lend out cryptocurrencies, stable coins, and USD to institutional players. To date, BlockFi has stated that it has not yet had any delinquency on their issued loans. This obviously does not mean that no borrower has been liquidated, just that their automatic system of margin calls is working properly.
Risks with the business model?
Without going into technical detail. One of the bigger risks might have to do with certain scenarios of extreme volatility where they cannot sell the assets that are backing a loan quickly enough. While this risk might be small, it does exist. So, lead us to ask some questions with respect to the safety of the deposited assets.
Earning interest on crypto sounds good! Are your cryptocurrency assets safe with BlockFi?
Are the BlockFi interest accounts fully insured?
No, while BlockFi obviously does try to mitigate their risks as a business, there is no insurance backing BlockFi deposits. So essentially, as a BlockFi client, you don’t want them to go broke. As a deposit holder (client) you are, however, first in line in case some would happen & their institutional investors have are also incentivized to help the company survive.
BlockFi uses Gemini as their primary custodian. This essentially means that they are protecting the bulk of the assets by using a custodial cold storage service provided by Gemini.
How does BlockFi handle security at a consumer level?
- BlockFi offers Two-factor identification (2FA): If you are thinking of becoming a BlockFi user, do not hesitate to utilize the Two-factor identification security option. This security option essentially allows you to add another lock on your account.
- BlockFi offers crypto address whitelisting: Another recommended method to ensure that no one tries to steal your crypto assets is to add predetermined specific withdrawal addresses. This ensures that any withdrawal of funds goes to a crypto address you control.
So, is BlockFi safe? Can I trust BlockFi? Is BlockFi legit?
There is no black or white answer to this question. Only time will be the judge of this. If they are still around 10 years from now we would have to conclude that they were safe today. The truth is that if you decide today to create an account with BlockFi or any other custodial party for that matter, you are betting that they will still be around in the foreseeable future.
What we can say is that the venture capital investors backing this startup have a great reputation and skin in the game. BlockFi is also regulated. For these reasons, we cannot but conclude that BlockFi as an organization is definitely legit. Whether they will still be around in a far future? We don’t know. You have to do your own due diligence and make that call for yourselves. What is certain is that you should not compare any crypto interest-bearing account to an FDIC or similarly insured bank account which you can find in the traditional banking sector. We’ve discussed this issue in more detail in the following article “Best Bitcoin Interest Account“. You might want to start reading from “custodial vs non-custodial”
What are the features of a BlockFi Interest Account (BIA)
Is BlockFi offering compounded interest?
Yes, with the BlockFi Interest Accounts (BIA), you are earning interest the interest you earned. BlockFi Interest is being paid out on a monthly basis.
BlockFi - Interest Payment Flex?
Interest Payment Flex is a really convenient feature of the BlockFi Interest Accounts. It allows you to choose in which currency you’d like to be paid out!
Example: You could be earning interest on an Ethereum deposit and get the interest paid out in BTC, or have USDC are your deposit and receive your monthly compounded interest in Litecoin (LTC).
We really like this option as a tool to reflect your positioning in the market. If you think for example that the BTC price will go sideways or down for a while, you might want to earn 8.6% on a USDC deposit, but ask for a payout in BTC, which can somewhat offset or hedge that position.
Does BlockFi have withdrawal fees?
Yes, BlockFi charges withdrawal fees, however, BlockFi Interest Account (BIA) users do get 1 FREE cryptocurrency withdrawal per month and 1 FREE stable coin withdrawal per month. While this should be plenty for most users, power users will have to consider the withdrawal fee structure.
In the table below you can see the current fee structure. While the fees for Ethereum, Litecoin, and stable coins are almost negligible, the BTC withdrawal fee is considerable!
- BTC at a price of 10,000 USD equals a $25 USD withdrawal fee
- ETH at a price of 250 USD equals a $0.38 USD withdrawal fee
- LTC at a price of 45 USD equals a $0.11 USD withdrawal fee
- compared to a stable coin withdrawal fee of $0.25 USD
We’d note that the embedded exchange in the account will, however, give you the option to exchange your BTC for another cryptocurrency or stable coin if you want to avoid these high BTC withdrawal fees.
Is there a minimum deposit amount in a BlockFi interest account?
Does BlockFi require a lockup period for your funds?
No, you can withdraw your funds at any time.
How to get started with a BlockFi interest account?
1. Create an Account
Getting started with a BlockFi interest is pretty easy. Simply create an account. Do note that you’ll need to verify your identity, so you’ll need your driver’s license/ identity card closeby. All-in-all, the process is not too painful.
While it is recommended that you enable the two-factor identification and add an address to the whitelist right away, you don’t need it to do that in order to proceed.
2. Deposit cryptocurrency
Once your account is created and verified, you can simply deposit your cryptocurrency. Simply select the currency you want to deposit. Remember that currently, you can only deposit Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC), USDC, PAX, and GUSD.
Tip For beginners: Remember to double-check the copied address before sending cryptocurrency and to make sure that you are sending the correct cryptocurrency. You cannot send Bitcoin a Litecoin address for example. You can use the copy to clipboard function to copy the address, but a good practice is to always double-check the first and last letters of a cryptocurrency address before you hit send from your wallet.
3.Start Earning interest on your cryptocurrency
Nothing more to it than this. All your cryptocurrency deposits will now start generating interest. You can exchange one currency for one another and it will immediately start generating interest in the newly acquired cryptocurrency. You don’t have to set up anything, it will work automatically.
Let’s follow up with a quick look inside the BlockFi dashboard!
The BlockFi Dashboard
Here you have an example of your BlockFi dashboard. You can always add deposits, withdraw, trade between cryptocurrencies, get a loan.
As you would expect there’s also a convenient overview of all your transactions and interest payments.
We particularly like that we can exchange cryptocurrencies from within the dashboard.
Deposit - Withdraw - Trade - Get a Loan
BlockFi Review - Conclusion
What we like & what we are looking forward to?
What we like:
- Interest Payment flex is awesome!
- Trading within the account is just perfect.
- Compounded interest!
- Fee-free monthly withdrawal
- Competitive rates
- No-lockup period
- Team & Institutional backing
What we are looking forward to:
- Mobile app
- BTC withdrawal fee is too high if you need more than the free withdrawal limit per month. We look forward to a frictionless (FREE or almost free) crypto withdrawal.
- Some kind of deposit insurance – we suppose that the market will figure out how to do that in the future.
- Crypto Debit card or Credit Card (Without prohibitive fees of course!)
BlockFi Review - Final thoughts
First off, we think the idea of earning an interest on crypto is very attractive. We think it is the ultimate aphrodisiac to fight the super-low or negative interest yield in traditional banks and we are grateful to companies like BlockFi, Celsius.Network and others, who are starting to pave the way forward and offering those financial products.
Obviously, the lack of deposit insurance is still a big factor when we think about how much crypto we’d allocate in a third-party deposit account for our personal portfolio.
Having said that, BlockFi is doing a great job so far and we’ve liked and are still liking the experience of earning interest on our cryptocurrency every day.
We hope you have found this BlockFi review to your liking and invite you to share this review to support if you’d like to support our work here at OnchainGuru.com.