There’s a pretty good chance your crypto is sitting in one of two places. It’s either on the exchange where you bought it or, if you’re the cautious type, it’s been transferred to a wallet of some sort.
Assuming you’ve chosen a reputable exchange or a secure online or hardware wallet, it should be relatively safe. Nevertheless, wherever you’ve opted to store it, the chances are it isn’t doing all that much.
Yes, you could argue that it’s waiting for the price to go up, in order that you can bank a healthy return on your investment. Join the club. Nevertheless, it’s still just sitting there as the price graph zigs and zags its way along. But there are ways for you to put that crypto to work, while still keeping hold of it in expectation of those big gains in the future.
Some of the Benefits of BlockFi. Image via BlockFi
BlockFi allows you to do just that. It’s a crypto wealth management platform, offering users the chance to earn interest on their crypto holdings, take out loans in USD using their crypto as collateral, and to trade different cryptocurrencies. It’s also an institutional lender, offering loans in cryptocurrencies, stablecoins and USD to companies and organisations looking to monetise their assets.
In this review, we’ll take a closer look at BlockFi: the services it offers, the people behind it and the crucial questions: is it safe and is it legit? We’ll also examine how it makes its money, what assets it supports and whether or not it’s a service you should consider.
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What you can do with BlockFi
Let’s start with an overview of the services BlockFi offers. We’ll look at factors like interest rates and supported assets in a bit more detail further on.
- Interest account: This is perhaps the simplest way to put your crypto to work on BlockFi’s platform. Once you’ve opened an account (more on this later) you can deposit with them and start earning compound interest straight away. The rates they offer are pretty good too, though they vary depending on the asset you’ve deposited. If you hold one of their three stablecoins then the rate goes up to 8.6% – not too shabby in anyone’s book.
- Crypto loans: If you need access to cash but don’t want to sell your crypto holdings to release it, then BlockFi offers crypto-backed loans. The minimum loan amount is $5,000 and you can deposit either BTC, ETH or LTC as collateral. The money is then wired to your bank account in USD. BlockFi promotes this service as an ideal way to finance big-ticket buys, such as real estate, cars, holidays and the like, or as an opportunity to diversify your financial portfolio.
- Trading: BlockFi users can also deposit funds on the platform and use them to buy more crypto or stablecoins.
- Institutional Lending: BlockFi uses the crypto deposited by retail investors to finance loans to institutions. This is one of the main ways in which the platform makes money and something we’ll cover later on in this review.
Although only three years old, BlockFi is headed up by people with plenty of relevant experience and some impressive credentials – always a good sign. The company was founded in 2017 and is based in New Jersey. Its co-founders are Zac Prince and Flori Marquez, who serve as CEO and SVP of operations respectively.
Prince has a BA in International Business from Texas State University and a background in tech, having been a VP of business development at Orchard Platform and director of sales at Sociomantic Labs, among others. Marquez, a Cornell grad, brings financial experience to the table, having worked at Bond Street and Oak Hill Advisors and is one of Crain’s rising stars in banking and finance for 2020.
From left to right: Zac Prince, Flori Marquez & Rene van Kesteren
Rene van Kesteren is chief risk officer and spent thirteen years at Bank of America Merrill Lynch prior to joining BlockFi. He lists machine learning and blockchain technology as being among his prime interests.
The other principal member of the leadership team is CTO Mahesh Paolini-Subramanya who has worked in tech since graduating from the University of Notre Dame in the late 1980s. As with van Kesteren, he has a deep understanding of blockchain and its potential and previously worked at Factom and Ubiquiti Networks.
The rest of the leadership team have a similar mix of experience in fintech and mainstream finance while the company as a whole employs 65 staff spread across four offices in New Jersey, New York, Argentina and Poland. There is talk of opening a Singapore office in the near future and all these numbers look set to grow as BlockFi looks to expand its range of services.
One of the most reliable metrics when evaluating a relatively new company is its list of investors. BlockFi has some impressive backing in this field, including from the likes of Akuna Capital, Coinbase Ventures, Galaxy Digital Ventures and the ubiquitous Winklevoss twins.
Some of the BlockFi Investors. Image via BlockFi
It’s most recent series A round of funding was in August 2019 and was lead by Valar Ventures, which has the backing of PayPal founder Peter Thiel. It raised $18.3 million to add to the $50 million raised the previous year.
The small Print
So far, we have a range of services that look to offer flexibility to peoples’ crypto portfolios and an experienced team with impressive lists of letters after their names. There are also plenty of big beasts and heavy hitters willing to put their money into the platform.
So far, so good. But let’s take a closer look at some of the finer details involved when using BlockFi.
It’s important to note that if you’re looking to earn interest, get a loan, or trade, then you can only do so with Bitcoin, Ethereum or Litecoin if you choose to use crypto. The other option is to use a stablecoin, of which BlockFi supports three: USDC, Gemini Dollar (GUSD) and PAX. So, if you’re holdings are made up of any other altcoins, then you’ll need to convert to one of these options to make use of BlockFi’s services.
We touched on the subject of the interest rates available for those looking to put their crypto to work with the interest account, but here’s a full rundown of what’s available:
Overview of Supported Cryptocurrencies & APY Rates. Image via BlockFi
As mentioned, that top rate is only available to those depositing stablecoins, but the rates for crypto are still miles better than anything you’d find from a regular bank. There’s also no minimum balance needed, so even those with smaller portfolios can still get involved.
Another point to be aware of when opening an interest account is that you’ll be charged withdrawal fees if you want to get any of your crypto back. Here’s a rundown of those fees:
Withdrawal Limits & Fees & BlockFi
The interest generated is paid out in the currency originally deposited. So, if you deposited BTC then that’s how you will receive the monthly interest payments. Recently, however, the platform has introduced a service it calls Interest Payment Flex, which allows you to choose to receive those interest payments in a different currency, as long as it’s one of those supported by BlockFi.
When it comes to loans however, you’ll need to have more capital to deposit as collateral in order to qualify for that minimum $5,000 loan. The maximum loan-to-value (LTV) rate is 50%, with rates of 30% and 20% also available. Here’s a rundown of those loan rates in full:
Crypto Loan Rates & BlockFi
It’s worth discussing at this point exactly how those loans are structured. Applications are processed quickly and, if you apply on a business day, you can expect a decision from BlockFi in around two hours. Your credit score isn’t affected by the application either, as BlockFi ‘does not pull hard or soft checks on client’s credit.’
Rather than rely on credit checks, BlockFi uses other factors to calculate interest rates, including loan size, location and the particular collateral being put up. This is doubtless a big draw for many in the crypto space who are looking to break free from some of the strictures that traditional financial places on us.
The repayments are interest-only, though overpayments can be made without incurring penalties. Here’s a look at the sums involved if you were to take out that minimum $5,000 loan, with the maximum 50% LTV:
Lending Conditions at BlockFi
There’s a sizeable chunk of interest to pay, as well as that 2% origination fee. That said, if you have a big chunk of crypto sitting around and you need to free up capital without having to sell it, then this is a good potential option, even if it will cost you. Of course, if the value of whichever crypto you’ve deposited has gone up in that time, then you may be able to recoup some of those fees.
If the value of your collateral suddenly drops, then you may need to provide extra funds, or pay down the loan balance. This is known as a trigger event – the first such being if your loan hits a 70% LTV rate. If this looks like happening then BlockFi will notify you of the need to take action.
How BlockFi Makes Money
The short answer here is that those assets you deposit with BlockFi are then used to finance loans to organisations, through a process sometimes known as rehypothecation.
The interest that BlockFi pays out is paid at a lower rate to that charged by it to corporate clients. Its loans are over-collateralised and the platform has automated risk management systems in place which constantly assess the health of all its outstanding loans.
BlockFi’s Founder on CNBC Talking Fundraising. Image Via CNBC
The company itself has identified three main types of organisation that use its services in this way:
- Traders and investment funds: essentially those looking for arbitrage opportunities and who ‘need to borrow crypto in order to close mispricing between exchanges or dispersed markets.’ Margin traders may also need to borrow in order to cover the costs of their trading strategies,
- Over the counter (OTC) market makers: connect buyers and sellers looking to do business away from public exchanges, who often have high fees and mark-ups. Rather than commit capital to own crypto outright (and thus being exposed to price fluctuations) they often prefer to borrow to provide liquidity.
- Businesses needing crypto to provide liquidity: these may want to keep the majority of their assets in cold storage but still need liquidity in order to provide for their customers. Crypto ATMs are cited as an example here.
The upswing in the Bitcoin price since the halving, combined with an increase in client sign-ups, has seen BlockFi’s asset pool grow considerably since the last round of funding. A recent blog post on its site reported that Q2 of this year had seen revenues increase by 100%.
Is BlockFi Safe?
BlockFi’s primary custodian is Gemini, (there are those Winklevoss bros again) which has recently completed its SOC 2 Type 2 compliance exam, making it the first crypto exchange to attain this level of security. It’s regulated by the New York State Department of Financial Services (NYDFS) and keeps 95% of its assets in cold, air-gapped storage.
Gemini’s Custody Solutions. Image Via Gemini
According to its website, even the twins themselves are unable to transfer crypto out of this cold storage. In short, Gemini’s security protocols are second to none and the chances of funds being stolen or accounts hacked are extremely low. Even if such a breach were to take place, all assets are insured by Aon and any losses would thus be compensated for.
As well as Gemini’s cast-iron security, BlockFi themselves employ a range of features to keep client accounts safe. Two-factor authentication is in place, and all passwords, personal and sensitive information is encrypted.
How to “Allowlist” on the BlockFi Platform
The platform also lets users practice ‘Allowlisting’ (otherwise known as whitelisting) on their accounts, whereby funds can only be withdrawn to certain, specified and approved addresses. They can even leave their Allowlists blank and thus prevent any withdrawals from taking place at all.
This double-whammy of exchange and platform security means that BlockFi can be declared safe to use. It would take an attack of immense sophistication to extract funds from either BlockFi or its custodian and even then the insurance in place would mean that clients whose accounts or assets were affected would not lose out in the long term.
No client funds had been lost at the time of writing and if an account is compromised then it is frozen for a week and a video conference conducted with the affected client to confirm their identity. Steps can then be taken to change passwords and email addresses to ensure that the client can regain control of their account.
If you’ve read this far and like the sound of what BlockFi has to offer, then you’ll be relieved to hear that signing up is easy and relatively quick. Although the company is US-based, it accepts clients from all over the world, unless they live in sanctioned or blacklisted countries.
So if by some miracle you’re reading this in North Korea, then bad luck. The sign-up form asks for all the usual details and you will have to complete KYC procedures and verify your ID. That done and you’re good to go.
The Simple Signup Form at BlockFi
Account verification usually only takes a few minutes, though you’re encouraged to get in touch if you haven’t heard anything within 48 hours.
Remember that there’s no minimum deposit for the interest account, though you’ll want to put down as much as possible in order to start earning any sort of worthwhile interest. If you’re looking to take out a loan, then make sure you’re fully aware of the charges and your repayment obligations before you collateralise your hard-earned crypto.
There’s a good list of FAQs on BlockFi’s website which should answer most questions that users and potential clients might have.
Any other queries can be sent via a support inquiry ticket from their help centre or there’s a live chat support bot that you can interact with as well. They also offer both email and telephone support if you want help with trading-related enquiries.
Support Inquiry Form at Blockfi
The consensus appears broadly positive in regards to BlockFi’s customer support, though there are a few gripes on Trustpilot and Reddit, mainly regarding withdrawals and resulting enquiries.
BlockFi has a lot going for it: there’s that strong team with a healthy mixture of experience in tech and finance powering it forward. There’s also no lack of faith from investors, who have seen fit to pile millions of dollars into the project over the last three years. Big names like the Winklevoss twins, Peter Thiel and Galaxy Digital Ventures’s Mike Novogratz clearly have faith in BlockFi and their opinions count for a lot.
Client sign-ups are increasing at a healthy rate and business appears to be booming. Then there’s that partnership with Gemini and the joint implementation of top-level security features to keep client assets out of the hands of hackers. Gemini’s NYDFS regulation is also a big plus point on this score, and shows that both platforms are serious about their obligations to openness and transparency.
The information regarding BlockFi’s services is clearly available on its website and its terms are well laid-out. Investors should always be aware of the risks of using such financial instruments and be fully aware of the costs and charges they may incur.
New BlockFi App Launched in 2020. Image via BlockFi
Then there’s the question of ownership and the old refrain of ‘not your keys, not your crypto.’ Yes, it is true that if you transfer your crypto to BlockFi then there is a risk inherent in that, albeit a small one.
Users should also be clear about the amount of interest they are likely to earn and should decide for themselves whether it merits handing over their crypto assets to a third party. It’s important too for them to be aware that their deposited funds are loaned out by the platform as a key part of its business model.
With all that said, there is no doubt that BlockFi is a legitimate enterprise and can be trusted with your crypto. It’s also an intriguing alternative to simply keeping your coins sitting on an exchange or in a wallet.
If crypto is to reach that holy grail of mass adoption, then it needs to be offering users a comparable range of products to those offered by traditional finance. Earning interest on your holdings – especially when central bank rates are so low – and being able to leverage your portfolio to buy real-world assets are both crucial steps towards meeting such demand.
That this can be done while still holding onto your coins is a huge bonus for many looking to make long-term gains. BlockFi is leading the way in this regard – expect more to follow.
Featured Image via BlockFi