BlockFi Review
Finances,  Investing

BlockFi Review – Pros and Cons of this High Interest Crypto Exchange

BlockFi Review – Is BlockFi Safe and Worth Using?

This BlockFi review may contain affiliate links for which I receive commission at no cost to you. I only recommend products I use and trust. Read my disclosure for more detail.

Guys and gals, welcome to my BlockFi review. I’ve been using this service for a few months now and wanted to share my thoughts on what it offers, where it excels and falters and whether it’s safe and worth using.

If you’re like me, you have a relatively healthy interest in cryptocurrencies. I’m always a fan of alternative asset classes to invest in and cryptocurrency has become one of the most interesting ones in recent years.

It has a lot of potential to uproot an old and outdated banking system(as well as other industries beyond financials) and may offer investors the potential for returns that aren’t fully correlated with things such as stocks and bonds.

On the other hand, it is also an area of investing that is ripe with volatility and even worse, scams and pump and dump schemes that can take advantage of a desire for quick wealth. This has led a lot of people to turn away from cryptocurrencies.

However, I still believe that it offers something other investments cannot and keep a small percentage of my overall portfolio in various coins.

Most importantly, as the space matures and products develop around it, crypto can offer investors the potential for an interesting risk/reward calculation that may be worth investigating. That can be especially true for people who have written off crypto as something too volatile or too impossible to understand.

That’s where BlockFi comes into play.

Block Fi Overview

BlockFi is a U.S. based and regulated cryptocurrency exchange that offers a variety of services to users. The most important one for me is a high interest account(yielding as much as 7.5% as of 8/9/21). Beyond that, there’s a no commission exchange for users to buy and sell assets like Bitcoin, a loan platform and more recently a credit card that rewards users with cashback in the form of bitcoin(which then can earn interest if kept on the platform).

Founded in 2017, BlockFi has become one of the most popular and most well funded digital asset companies offering these services. It is one of the blue chips in the space and has the backing of a variety of large corporations. In fact, in its most recent funding round, it raised over $350m in funding and was valued at nearly $3B. In the past few years it has grown from 10,000 accounts to over 250,000 retail accounts alongside over 200 institutional clients.

While BlockFi has grown to offer a variety of services, if I’m being frank, the main selling point here is shown in the picture below so let’s dive right into that.

High Interest Account and Cryptocurrency Exchange

What first piqued my interest about BlockFi is the high interest offering which offers rates that are much more enticing than the standard savings account. These days, those are at best 0.5%. The difference between 7.5% and 0.5% on a $10,000 savings account is $700 per year and only compounds from there which can make a big difference in the long run.

No BlockFi review would be complete with some excel tables so let’s take a look at how much of a difference the interest rates really make.

BlockFi Review

After ten years, the 7.5% account is nearly double the value of the 0.5% interest account which barely moves are likely falls behind inflation.

Opening an account is very simple and moving your money is quick as well and can be done via ACH and a connection using Plaid. That’s one thing I’ve found lacking in a lot of the newer less known cryptocurrency exchanges as some still have you send a wire to get money to them. What is this, 2003?

By default, your money goes into a stablecoin, GUSD, which is a 1:1 dollar backed coin built by Gemini, a U.S. company regulated by the New York Department of Financial Services. You can then use it to buy a variety of coins available on the platform, each of which pay their own specific interest rate. You can find that list of interest rates here.

I personally use BlockFi as a high interest account and keep all my money in GUSD which gives the highest yield. I’ve been a member for quite a few months now and have had a few payouts that certainly dwarf what I would have gotten in a standard account.

BlockFi

The good thing about BlockFi is that you do own all your coins and can easily transfer them to and from the exchange. It’s important to have that feature as that is the whole purpose of cryptocurrency and doesn’t lock you into one platform.

Naturally if you keep your money in a cryptocurrency, your dollars are subject to the volatility inherent in the currency so your interest may vary. If the price of the coin goes up, the interest you receive will be higher and if it goes down, it will be lower as the APY is based on the price of the coin.

On the other hand, the stablecoin(as evidenced by the name) will remain at your deposited amount as the price of the coin doesn’t change. That’s why for me, as someone who wants to limit my risk with this cash, I stick with stablecoins on this platform. While I may eventually move some of my cryptocurrency here to earn interest, I keep most of that offline at this point.

Another benefit of BlockFi is the ability to buy and sell cryptocurrency without commission. The platform has a variety of coins available for sale but you can also transfer all these coins onto the platform from another exchange or from your personal wallet.

While this is an option, I usually buy my coins on another exchange. While BlockFi doesn’t take a commission, they do have a bid/ask spread between the coin when buying or selling. That’s something to keep in mind as it may make the it less favorable to buy on BlockFi than another exchange that takes a commission but has a better spread between prices. I do hope that spread tightens in the future as I’d love to be able to buy all my coins here as well.

However, I do understand that the company has to make money in order to offer these attractive rates and that’s one way they do it.

Overall, BlockFi offers an easy to use platform and offers good interest rates that easily beat out most banks. The high interest account is a big selling point for me and one of the main reasons I’ve stuck with the platform.

I will note that these interest rates are subject to change and have gone down a bit since I started investing in BlockFi. That has come at a time where cryptocurrencies have fallen 50%+ so I’m hopeful they can rise again now that they’re moving upwards.

Another important thing to note is that BlockFi deposits are not FDIC insured unlike a regular bank which adds additional risk to your savings.

That means its up to BlockFi to manage their platform in a way that doesn’t put the depositors at risk(I’ll talk about that more soon). I do believe they do a good job of that and have plenty of equity at this point to make this a low risk proposition but it’s not without risk.

As such, I generally don’t keep all of my money in BlockFi but view it as an uncorrelated asset that may add some additional return to my portfolio. As an investor, you always have to do your own risk/reward calculation against other assets such as stocks, bonds, cash and gold and invest accordingly.

My BlockFi savings make up a small percentage of my overall portfolio but I feel good about the reward I get for the potential risk I’m taking on.

BlockFi as a Lending Platform

Interest rates such as this won’t last long if the platform doesn’t have a good way of earning money and BlockFi has a variety of ways to do that.

In my mind, as a long term investor, the question comes down to; how does BlockFi make money in order to be able to offer such competitive interest rates and will it last?

On the retail side, it can work with holders of cryptocurrencies who may have a lot of assets in that class and want to access funds without selling and incurring a tax bill.

Investors can use their cryptocurrency as collateral to get access to cash and pay an interest rate as low as 4.5%. There are plenty of people out there who may have massive capital gains in their Bitcoin and want to continue to hold it and would rather pay a small interest rate to access their cash for the short term versus paying a large capital gains bill and selling.

Generally BlockFi will offer up to 50% of the value of the Bitcoin in cash and hold the Bitcoin as collateral. The risk management here is simple as Bitcoin would need to fall 50% for the loan to be at risk and BlockFi has a variety of margin calls before that happens that protect them from losing out and putting depositors at risk. That alone makes me appreciate the value of digital assets such as Bitcoin because it’s so easy to leave collateral and get money out from an institution such as BlockFi.

BlockFi has been around since 2017 and have been lending money out since 2018 and the company has had no issues during the various bear and bull cycles(including the recent one) in terms of depositors being put at risk.

Beyond working with the retail side, BlockFi works with various institutional clients who want to borrow cryptocurrencies for various strategies for short periods of time.

On top of these interest fees, BlockFi also earns money from withdrawal fees(investors can withdraw for free once per month but may be charged beyond that), spreads from trading and utilizing arbitrage opportunities in the market.

Overall, BlockFi has a robust business model that utilizes both retail and institutional investors to support their growing business model.

As this area of the cryptocurrency space becomes more competitive, it’s quite possible that the interest rates they are able to collect shrink which may lead to lower interest rates. On top of that, this area of the investment space is also subject to regulatory changes such as the recent complaint from the New Jersey Bureau of Securities that BlockFi interest accounts may be unregistered securities and not any old standard savings account.

While this doesn’t put the depositor’s capital at risk, it does mean that there are uncertainties around how products like this may look in the future.

The BlockFi Credit Card

BlockFi is constantly evolving their business model and their latest addition is the BlockFi Credit Card which allows users to get cash back in the form of Bitcoin.

It offers unlimited 3.5% cash back in Bitcoin for the first 3 months(1.5% after, 2% if you spend over $50,000 in annual spend). It comes with no annual fee and no foreign transaction fees.

While I don’t have the card and don’t plan to apply, I like the fact that the company is moving forward and finding new ways to generate income which should support their ability to offer competitive interest rates in a market that’s constantly evolving. If you’re interested in finding out more about the card, you can check it out here.

Is Block Fi Safe?

The main downside of BlockFi is that it is not FDIC insured like a standard bank.

That means that if it somehow goes under and all equity is wiped out, your money is at risk. As a lender, it’s up to BlockFi to effectively manage their risk and make sure that doesn’t happen.

There’s a few ways they do that. First, as I mentioned above, their loans are collateralized with cryptocurrency on at least a 2:1 basis with multiple margin calls in between. That means that bitcoin would have to drop 50%+ or more in a short amount of time for that to become a risk.

Even if that happens, BlockFi retains internal collateral to cover deposit issues and prevent such risk. It was nice to see the platform function without a hitch while Bitcoin fell more than 50% in 2020 showing that the risk management procedures worked well.

On top of that, Gemini, the primary custodian of the main stablecoin GUSD holds 95% of their assets in cold storage and is insured by Aon. If somehow, BlockFi were to get hacked, the fact that they don’t hold their own stablecoins means the risk of loss is lower. You can read about Gemini’s security procedures here as well.

On the institutional side, BlockFi works with large trustworthy parties and generally deals with short term loans to parties that only have part of their business in cryptocurrencies. These loans are also generally collateralized with cash which can be used to purchase cryptocurrencies in the case of a default.

No one customer makes up a large portion of their income and it would take a group of large wide-spread institutional failures to put the company at risk.

On top of that, since the company has had quite a bit of equity funding, depositors such a myself are near the top of the risk stack. If the company fails, it would be the equity holders that would be wiped out first before any depositors are hit.

Given the large recent funding round and more to come, I feel pretty comfortable with the current risk scenario for those of us holding stablecoins with BlockFi.

On top of that, the BlockFi website and app has good internal security for individual accounts. You can and should turn on 2FA for our account but also turn on whitelisting to prevent any unauthorized activity from impacting your account. Whitelisting will prevent new addresses from taking out money from your account for at least 7 days during which time you should be able to restore access to your account if it was lost for some reason.

Block Fi Review – Is BlockFi Worth It?

In my mind, BlockFi is one of the most trustworthy interest bearing cryptocurrency accounts.

It is an easy way to get a high interest return and dabble in the world of cryptocurrency. This is especially true for people who are more risk averse and don’t love the volatility that may come with currencies like Bitcoin. Here your stablecoin won’t drop in value(or rise) but you’ll still get a high interest rate on your money while you get more comfortable with cryptocurrency as an asset class.

My cryptocurrency stash has grown as a percentage of my portfolio and I’m more that willing to explore the new world of finance that is being created around that asset.

BlockFi is one of the best products I’ve found that provides high interest, a solid exchange and the ability to take out loans on my cryptocurrency holdings. For me, it’s the high interest that matters most and I’m more than willing to put a portion of my savings into an account that will give me thousands more than a traditional bank account at current rates.

However, it’s quite possible, that as my Bitcoin and Ether stash grows, I’ll want to take out a loan on that money in the future and BlockFi offers those products and others as well.

While I do believe this area will get more competitive and rates will likely come down, I’m very happy with the risk/reward scenario it offers right now. Since this it not FDIC insured, I don’t feel comfortable putting all my savings into it but I do feel like the reward more than outweighs the risk for the portion I have in there.

While I store the majority of my cryptocurrency offline in cold storage, I do plan to put more money into stablecoins here and maybe even buy some coins that can start earning interest as well.

Right now, the world of cryptocurrency is growing and a lot of interesting products are coming out that allow investors to benefit from more than just the price appreciation of the coins and BlockFi is leading the pack in that area.

If you’d like to sign up for BlockFi, you can use the link here to open an account and get up to a $250 BTC bonus as a reward for joining.

Thanks for reading this BlockFi review. Let me know your thoughts and whether or not you like the platform.

BlockFi Review Interest Account

3 Comments

  • Scott

    Saw your link to this post on Reddit (FIRE) and wanted to comment on one thing:

    “…BlockFi also earns money from withdrawal fees(investors can withdraw for free once per month but may be charged beyond that), spreads from trading and utilizing arbitrage opportunities in the market.”

    That last part about arbitrage is the one I worry about the most, and is one reason I suspect the interest rates will go down with time. BlockFi has a large stake in the Grayscale Bitcoin Trust (GBTC). Unless they were fools, they would have been cycling their Bitcoin in the trust by buying at NAV and then selling at a significant market premium that remained for years (and then immediately re-purchasing from Grayscale at NAV). They could guarantee a significant profit doing this if they wanted by shorting market GBTC at the same time they bought it at NAV (which only accredited investors/institutions could do). When the premium collapsed with the introduction of the Canadian BTC ETFs, that source of income dried up, and now they’re left with a huge amount of assets sitting as GBTC, which is trading at a discount now.

    Who knows how much the above contributed to BlockFi’s ability to pay high interest rates in the past, but I think it’s reasonable that at least some of their money was coming from the above.

    Meanwhile, I’d personally like to pursue a small stake in this as a way to supercharge our (huge) cash emergency fund, but my wife wants it in less risky cash equivalents. Once that’s built up again after getting our new central A/C, then I may make the move.

    • TimeintheMarket

      Very much agree with your point. I think the reality is that crypto is a cash cow for a lot of businesses right now(look at Coinbase for an example) simply because there’s a lot of opportunities for arbitrage and also an opportunity to make money off the user base. That drives what these companies are able to offer to draw in new users. Once that dries up as more and more competitors flood the space, these rates will have to come down eventually as their sources of income will become smaller and smaller.

      Right now, I’m surprised how much money some of these exchanges can make without offering much back in return so I’m glad to see companies like BlockFi putting pressure on the space which I’m sure will drive down cost and improve offerings in the long run even if it means these high interest rates can’t sustain.

      I agree on the risk part, still don’t feel super comfortable with putting all my cash into this but a small percentage certainly isn’t unreasonable.

  • Impersonal Finances

    I heard about BlockFi on the Animal Spirits podcast and like the platform a good amount, but then I just started dipping my toe into the crypto waters so I have a very small amount of Bitcoin & Ethereum. Overall I am a fan though.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.