BlockFi – Do More With Your Bitcoin
BlockFi is cryptocurrency exchange and crypto-backed lending platform.
Launched in 2017 by co-founders Zac Prince and Flori Marquez BlockFi has grown to become one of the biggest and most trusted brands in the Bitcoin space.
Based in New Jersey, BlockFi offers financial products designed to help hodlers do more with their Bitcoin and other digital assets.
BlockFi services individuals and businesses worldwide, and in all 50 US states, with offerings including fee-free trading, interest-bearing accounts, and low-cost USD loans secured with crypto.
Anyone wanting to buy Bitcoin with BlockFi can do so with a bank wire. BlockFi advise its international customers to send USD, as that is the currency in which your wire will be converted into and you might be charged more if you send something other than USD.
BlockFi also offers USD loans backed by cryptocurrency with an interest rate starting at 4.5%, and an interest bearing account in which you’re paid interest on a monthly basis.
The interest is paid monthly in the cryptocurrency of your choice and it compounds. For a Bitcoin interest account it works out at about 6% per year, but the interest paid on GUSD and USDC stablecoins compound at 8.6% per year.
BlockFi is also the only independent lender with institutional backing from investors that include Morgan Creek Digital, Galaxy Digital, Fidelity, ConsenSys Ventures, Coinbase Ventures, Winklevoss Capital and two prestigious university endowments.
All BlockFi assets are stored with their primary custodian Gemini, which keeps 95% of all its digital assets in cold storage at any one time, and only 5% in a hot wallet.
Gemini exchange has secured insurance coverage for digital assets in its custody through London-based Aon PLC, and any BlockFi assets stored in Gemini are covered.
Signing Up With BlockFi
BlockFi is available in the US, and American residents have access to all BlockFi products, except NY, which doesn’t allow for the interest bearing account.
Every other country, except those that have been sanctioned by the US, UK or EU is serviced by BlockFi.
Signing up with BlockFi and opening an account is super easy, but because BlockFi is a fully regulated exchange, the platform requires its clients to complete a ‘know your customer’ (KYC) check.
To open an account with BlockFi, go to the website and follow these steps:
- Click on the ‘Get Started’ tab in the menu.
- Enter your email and make a password to create your account.
- Enter the verification code sent to your email.
Once logged in, complete the KYC form. For this you will be asked for your personal information and a government issued ID, such as your passport or driver’s licence.
Once you’re approved, you’re good to go.
How To Buy Bitcoin With BlockFi
Buying Bitcoin with cash using BlockFi is straightforward enough, but the only way to do so is with a bank wire.
- To send a bank wire, you should click the ‘Deposit’ tab on the main menu.
- Select ‘USD (wire transfer)’ as your deposit currency.
- Follow the ‘Wire Deposit Info’ details and send your wire to BlockFi.
You will receive a confirmation email once BlockFi has received your wire, which could take up to 24 hours.
BlockFi doesn’t charge anything for bank wires, but your bank likely will. There is a minimum fee of $10 that BlockFi will accept, but bear in mind your bank might charge more, so sending a small amount won’t be cost effective.
Once your cash has arrived in your BlockFi account it will automatically be converted into GUSD stablecoin. This is a dollar-pegged cryptocurrency, and any dollars you hold in your BlockFi account will be held in GUSD.
To buy Bitcoin with your GUSD:
- Click the ‘Trade’ tab on your Dashboard
- Select ‘Receive’: GUSD
- Select ‘Pay With’: BTC
- Enter the GUSD amount you would like to use to purchase BTC
- Click the Swap Icon to calculate the exact BTC you will receive based on current market prices.
- Click ‘Confirm Trade’
- Click ‘Submit Trade’
- You will then have executed a trade to buy Bitcoin with your GUSD
The Bitcoin will then be held in your BlockFi Bitcoin wallet, and will start earning interest all the while you keep your Bitcoin in there.
Earn Compound Interest on Your Bitcoin in The BlockFi Interest Account (BIA)
Whenever you hold Bitcoin in your BlockFi wallet, you are earning interest. The interest rate fluctuates, depending on the need from verified investors, who BlockFi lend crypto out to.
At time of writing, the interest rate for Bitcoin is 0.005% per month. This is paid monthly however, on the first working day of the month, and your interest compounds.
This works out at 6% per annum.
For example: If you deposit or buy 1 Bitcoin on January 1st and hold it in your BlockFi Interest Account (BIA), you will earn 0.05% by the end of the month.
0.005% of 1 Bitcoin 0.005 BTC, and this interest payment is added to your account on the first working day of Febraury. And so your new total would be 1.005 BTC.
This then earns interest for the following months, and the process repeats month over month. After one year of not touching your Bitcoin, your new balance would be 1.06 BTC.
At today’s rate of $11,000 per Bitcoin, you will receive $55 worth of Bitcoin per month per Bitcoin.
This continues over and over until you decide to withdraw your Bitcoin.
If you’d like your compound interest to be paid out in a different currency than Bitcoin, BlockFi offers this service, too.
It’s called Interest Payment Flex, and basically you can hold Bitcoin in your BlockFi account and receive your interest in Ethereum (ETH), or GUSD, or vice versa.
If you hodl GUSD or USDC in your BlockFi Interest Account, you will receive a fantastic 8.6% interest a year. And again, you can have your interest paid out in the currency of your choice.
Withdrawing Funds From Your BlockFi Account
To withdraw your funds you simply fill out the form with the Bitcoin address you would like it sending to.
To withdraw BTC there’s a charge of 0.0025 BTC for every withdrawal, and there’s a limit of 100 BTC every seven days.
Withdrawals are often pushed-through within 24 hours, but BlockFi reserves up to 7 days to process a client fund withdrawal.
I have withdrawn a couple of times and have never had an issue.
The reason it isn’t almost instant like we’re used to with cryptocurrencies is because most of BlockFi’s assets are stored with its primary custodian Gemini in cold storage.
Get A Crypto-Backed Loan With BlockFi
Many people buy Bitcoin because they believe the price will appreciate in the future. But many people also run into financial difficulties and need cash from time to time.
If you have to liquidate your Bitcoin position to pay for something, it means you might miss out on those future gains.
BlockFi offers a way out of that with its collateralized loans.
Applying for a loan with BlockFi is easy and a great way to get around not selling your Bitcoin when you need some cash.
To apply for a loan, you type your requested loan amount in USD, add the kind of crypto you intend to stake (you can borrow up to 50% of your collateral), complete the KYC form, and submit your application. BlockFi will get back to you with their answer within 24 hours.
BlockFi loans start at a 4.5% interest rate for someone willing to collateralize 80% of the loan, and the highest rate is 9.75% for 50% collateral. The term of the loan is usually 12 months.
You can make overpayments on your loan and pay it off quicker without penalty, if you choose.
The collateral on your loan should not exceed 50%, so a problem would ensue if the price of your collateralized crypto went down. If this happened, BlockFi would contact you when the loan to value (LTV) had reached 65-70%.
If the LTV was to ever reach 70% you would be required to add more collateral to your account. If you didn’t and the value of your collateralized crypto kept going down, then BlockFi would liquidate your account, and automatically take the funds its owed, and hand you the rest.
If the price of your collateralized crypto went up, however, then the LTV would go down, you could then pay your loan off if you choose, or BlockFiallows its clients to take a further loan without the need of anymore form filling.
BlockFi loans are interest-only and clients are expected to only pay interest during their monthly payments, with a lump sum payment for the remaining amount required at the end.
If you choose to make overpayments, however, you can do so with Bitcoin or any other cryptocurrency, or USD through a bank wire.
How Does BlockFi Make Money?
BlockFi offers fantastic interest rates, so many wonder how it can afford to do so, but maybe you should be asking your bank why it can’t afford better interest rates than 0.01% per year.
BlockFi makes money in various ways.
BlockFi is mainly a spread business that makes money by borrowing capital at a certain rate and lends it out at a higher rate, and its clients are mostly institutional clients looking for liquidity.
These clients include traders, investment funds, and OTC market makers, who all need cryptocurrencies without buying them from the market.
Is BlockFi Safe and Secure?
BlockFi is one of the safest places to store your Bitcoin if you’re choosing a third party custodian.
BlockFi is as safe as its primary custodian Gemini, which keeps 95% of its assets in cold storage and 5% in hot wallets that are insured.
Gemini is a licensed custodian and regulated by the NYDFS, and it recently received SOC2 compliance from Deloitte for their custody solution.
BlockFi – Do More With your Bitcoin
BlockFi is much more than a platform to buy and sell Bitcoin. It allows its users to do much more with their Bitcoin.
Whether you want to earn compound interest and a steady passive income, or you need cash but don’t want to sell your Bitcoin, BlockFi can serve you.
While BlockFi’s interest rates are appealing, many Bitcoiners will tell you: Not your keys, not your Bitcoin.
This means, if you don’t control the private keys, they’re technically not your Bitcoin.
What would happen if the US government made Bitcoin illegal and demanded all custodian services to freeze accounts?
It’s an unlikely event, but Bitcoiners don’t trust the government, so it might be a good idea not to put all your eggs in one basket, if that’s how you think.
However, some argue that custody solutions like BlockFi are safer, because people are regularly mishandling their private keys and losing their Bitcoin forever.
BlockFi is an legitimate company, and it offers a great way to make a passive income with your Bitcoin.
It might not be for everyone, but I like to make some of my Bitcoin work for me.
You make your own mind up, but I hope this review has helped you decide.