Before starting, I want to emphasize that earning passive income with Bitcoin goes against the Bitcoin philosophy, and the very reason it was created in the first place.
Not Your Keys Not Your Bitcoin?
There’s a belief among part of the Bitcoin community that if you don’t have your Bitcoin in your custody, then they don’t belong to you. ‘Not your keys, not your Bitcoin’ is a phrase/meme that many in the Bitcoin space swear by.
It’s down to the reasoning that owning Bitcoin is kind of an objection against the legacy financial system, in which banks actually own the money that you deposit. Well the ‘not your keys, not your bitcoin’ meme is targeting that very system.
And while I admire the integrity behind the idea, and I do recommend keeping some in your possession just in case, but I do believe it is worth putting some Bitcoin to work, and letting it earn a passive income.
Make Passive Income With Your Bitcoin
With the legacy banking and financial system a mess and interest rates down to zero, and even negative in some parts of the world, Bitcoin has come along and energized the financial and loan markets.
The interest differs from platform to platform, but because it’s not tied to the banking system, and because the companies do not have the crippling overheads of banks, they can afford to pay an excellent interest rate.
And while there are a few platforms that offer higher interest rates, I believe BlockFi is the safest – mainly due to the fact it has such significant Institutional backing.
What is BlockFi?
Founded in 2017 by founders Zac Prince and Flori Marquez, BlockFi offers financial products designed to help cryptocurrency holders to do more with their digital assets.
BlockFi services clients worldwide, with interest earning accounts and low cost USD loans backed by crypto.
BlockFi is not an FDIC insured company, but I believe this is due to the regulatory framework not allowing insurance companies to insure such a product.
BlockFi Has Huge Institutional Investment
However, BlockFi’s main custodian is Gemini, which stores a minimum 95% of BlockFi holdings in its vault, meaning your holdings are extremely secure form hackers, and Gemini is an FDIC insured company.
BlockFi is the only crypto lender with institutional backing, from the likes of Fidelity Investments, Morgan Creek, and Winklevoss Capital to name a few.
BlockFi has a fool proof and very easy to use UI, making it easy for the beginner to navigate. It also has an iOS and Android app that’s accessible for anyone with a smartphone.
BlockFi allows you to fund your account by sending your BTC from another wallet, or by cash through a bank wire. Once your account is funded it can be exchanged for any of the following cryptocurrencies: BTC, ETH, LTC, GUSG, USDC, and PAX.
Earn Compound Interest
It is the only Bitcoin lending platform that offers a crypto deposit account that earns compound interest. Compound interest, for those of you that don’t know, is interest paid out is added to the same account and will also earn interest. This is paid out monthly on BlockFi, so every month your interest is earning interest on top of your balance.
When signing up you have to complete a KYC process, and once you’re up and running you can send BTC and start earning interest from day one.
The interest fluctuates, but for BTC it’s currently 6% per year. There is no minimum amount, but you can earn 6% interest on your first 5 BTC, and 3.2% after that. Your interest can be paid out in BTC, or any of the cryptocurrencies mentioned above.
BlockFi Loans For Those That Don’t Want To Sell Their Bitcoin
BlockFi does collateralized loans in which you can get up to 50% of your cryptocurrency value in USD wired to your bank. The loan rates start from 4.5% and are over a 12 month period.
It’s a great way of getting your hands on money without having to sell your BTC. Although, I wouldn’t recommend getting the full 50% value loan, because if the price of BTC was to drop then your collateral would drop, and you would have to top it up.
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This LTV rate is why they only do a 50% loan to value of crypto. If it was to drop, and your LTV went to 70%, BlockFi would ask you to top up your crypto holdings to bring the LTV back down. If it was to get up to 80% then BlockFi would liquidate your crypto holdings.
What Could Go Wrong?
Remember the saying: Not your keys, not your Bitcoin. It’s a meme, but it’s also very true. Bitcoin was created to give people financial sovereignty, and if you let some company custody it for you, then it’s not in your possession.
However, BlockFi is a as regulated as a cryptocurrency custodian and lending platform can be. They play by the rules, but what if governments all of a sudden said they wanted to seize all bitcoins. BlockFi would have to play by the rules and hand in your seized bitcoins.
We have seen banks withholding people’s money in places like Argentina and Lebanon, and even Greeks and Cypriots had their wealth stolen from their governments. This could happen if your BTC is not in your possession, even in the US or western Europe.
It’s an unlikely event, but within the realms of possibilities with the state of the world.
Bringing It All Together
BlockFi offers crypto holders the safest platform for earning interest on their BTC holdings. It’s as safe as a crypto custodian can be, and although you’re handing your financial sovereignty to somebody else, I believe it’s in safe hands.
I’ve personally used them for about a year now and it’s nice to see the compound interest adding up. I have made a couple of withdrawals, too and it although it takes longer than a typical BTC transaction, the security process they go through makes you feel that your holdings are very safe.
There will always be those who would never hand sovereignty over, and I totally understand that, but I don’t have a problem, and neither do thousands of their customers.
Author: Tommy Limpitlaw
A Bitcoiner since 2017 and a Bitcoin Maximalist since 2018, Tommy is our main writer and editor at Bitcoin Maximalist. Other than researching and writing about Bitcoin, Tommy loves spending time with his family and supporting his beloved Leeds United.