Is BlockFi a Safe Place to Put My Crypto?
People in the world of personal finance typically deploy strategies to maximize their return on investments in a safe, legal, and secure way.
For cryptocurrency investors, there are a few options that accomplish this.
Today, we’re going to focus on BlockFi.
Disclaimer: I personally use BlockFi’s Interest Account (BIA) to earn interest on my cryptocurrency. That said, I do not withhold any negative opinions upon examination of BlockFi. Additionally, I pledge to review BlockFi under the same scrutiny I would any other product that I use and recommend.
What Is BlockFi?
BlockFi is a secured non-bank lender that offers cryptocurrency and crypto-backed USD products to crypto owners.
The company was founded in 2017 and is based in New Jersey, USA, though they offer services to clients worldwide. In addition to their New Jersey headquarters, they also occupy offices in New York, Poland, and Argentina.
BlockFi Products
BlockFi keeps the focus of their product offerings to a shortlist of three products:
- BlockFi Interest Account (also known as BIA), where clients earn up to 8.6% APY. Interest is paid out monthly in the currency of your choice. There are no minimum balances required.
- Trading Account, where clients buy and trade bitcoin, Ethereum, and various other cryptocurrencies offered on their platform.
- Crypto-Back Loans, where clients borrow USD at interest rates as low as 4.5% APR.
In addition to these three products, BlockFi is marketing the release of their new credit card, the BlockFi Rewards Visa® Signature Credit Card, where cardholders can earn interest in bitcoin at 1.5% on every purchase and no annual fees.
At the time of writing, the BlockFi credit card is not yet offered to the public, but a waitlist is available for those interested in applying.
What Cryptocurrencies Does BlockFi Support?
The BlockFi Interest Account (BIA) is a high-yield interest-bearing account (think high-yield savings account) that supports nine of the largest cryptocurrencies and stablecoins by market cap.
Supported Cryptocurrencies
Currently, BlockFi offers support for the following cryptocurrencies:
- Bitcoin (BTC)
- Ethereum (ETH)
- Litecoin (LTC)
- Chainlink (LINK)
- USD Coin (USDC)
- Gemini dollar (GUSD)
- Paxos Standard (PAX)
- PAX Gold (PAXG)
- Tether (USDT)
- Binance USD (BUSD)
BlockFi Interest Account (BIA) owners can withdraw at any time, with no withdrawal restrictions. Additionally, withdrawals are processed in 1-2 business days.
What Are The Interest Rates (APY) and Fees?
One of BlockFi’s main points of pride is that they offer market-leading interest rates for their interest-earning accounts and loans.
“BlockFi sets itself apart from other crypto asset service providers by pairing market-leading rates with institutional-quality benefits. “ – BlockFi
The interested rates are laid out on BlockFi’s website in a refreshingly clear manner. They want you to be aware and informed of the amount of crypto your interest will be earning, as well as fees associated with account withdrawals and loan rates.
BlockFi Interest Account (BIA) Rates
Looking at the table below, you can see that bitcoin (BTC) and Ethereum (ETH) earn interest on a 3-tiered system.
Bitcoin holders can earn up to 5% on their crypto deposits, and Ethereum can earn up to 4.5%.
| Currency | Amount ** | APY |
|---|---|---|
| BTC (Tier 1) | 0 – 0.5 | 5% |
| BTC (Tier 2) | > 0.5 to 20 BTC | 2% |
| BTC (Tier 3) | > 20 BTC and above | 0.5% |
| LINK | > 0 | 4.5% |
| ETH (Tier 1) | 0 to 15 ETH | 4.5% |
| ETH (Tier 2) | > 15 to 1000 ETH | 2% |
| ETH (Tier 3) | > 1,000 ETH and above | 0.5% |
| LTC | > 0 | 5.5% |
| USDC | > 0 | 8.6% |
| GUSD | > 0 | 8.6% |
| PAX | > 0 | 8.6% |
| PAXG | > 0 | 4% |
| USDT | > 0 | 9.3% |
| BUSD | > 0 | 8.6% |
Account Withdrawal Limits and Fees
BlockFi allows for one free crypto withdrawal and one free stablecoin withdrawal per month. These are the fees applied after the free withdrawal has been used.
| Currency | Withdrawal Limit | Fees*** |
|---|---|---|
| BTC | 100 BTC per 7-day period | 0.00075 BTC |
| ETH | 5,000 ETH per 7-day period | 0.02 ETH |
| LINK | 65,000 LINK per 7-day period | 0.95 LINK |
| LTC | 10,000 LTC per 7-day period | 0.0025 LTC |
| Stablecoins | 1,000,000 per 7-day period | $10.00 USD |
| PAXG | 500 PAXG per 7 day period | 0.015 PAXG |
Crypto-Backed Loan Rates
As with traditional banking protocols, the amount of USD you can borrow depends on the amount of collateral, or crypto, you post and secure against the loan.
| LTV | Interest Rate | Origination Fee |
|---|---|---|
| 50% | 9.75% | 2% |
| 35% | 7.9% | 2% |
| 20% | 4.5% | 2% |
View more on BlockFi’s rates page here.
Moreover, BlockFi states that interest rates are subject to change. It is common practice for most interest-bearing products to fluctuate based on the market. If rate changes are invoked, BlockFi will communicate any change before they happen.
Does BlockFi Insure Crypto?
Cryptocurrency stored on BlockFi is not protected by Federal Deposit Insurance Corporation (FDIC), SIPC, or other similar banking or brokerage protections.
As stated in BlockFi’s Risk Disclosure in their Interest Account Terms page:
“Your Crypto Interest Account is not a checking or savings account, and it is not covered by insurance against losses.” – BlockFi on Interest Account Terms
BlockFi’s Trading Account product receives the same treatment as digital assets, or crypto, purchases made through BlockFi Trading are settled and delivered into BlockFi Interest Accounts. (See Risk Disclosure for Trading Terms).
Risk Transparency
On their rates page, you’ll find disclaimers mentioned alongside every product offering. They basically state that these products are not protected by FDIC, SIPC, or similar entities.
BlockFi’s products are not risk-free and loss of principal, or original funds, is possible.
That said, it’s important to note that at the time of writing, there are no crypto-lending services that offer insurance on interest-bearing accounts, which is a problem that is attracting major insurance companies to create products as a solution.
Personally speaking, having no insurance makes me a bit uneasy but I look forward to insurance companies solving this issue, as it is a lucrative opportunity for them and will be one less worry for crypto investors.
How Does BlockFi Make Money?
Like most traditional lending services, BlockFi makes money by borrowing capital at a specified rate (the interest rate offered to BlockFi clients) and lending said capital at a higher rate (the interest rates offered for their crypto-backed loans).
“BlockFi generates interest on assets held in Interest Accounts by lending them to trusted institutional and corporate borrowers.” – BlockFi
Naturally, this prompts the next crucial question of safety.
Is BlockFi a Safe Place to Put My Crypto?
Two major factors to consider in regards to the safety and security of these services are their custodians (where they store digital assets) and platform security features.
High-Level Security Custodians
BlockFi’s primary custodian is Gemini Trust Company, LLC (Gemini) – a company regulated by the New York State Department of Financial Services.
? A custodian or custodian bank is a financial institution that holds customers’ securities for safekeeping to prevent them from being stolen or lost. The custodian may hold stocks or other assets in electronic or physical form. – Investopedia
To gain more clarity on where crypto is stored, other than Gemini as their primary custodian, I contacted BlockFi Client Support. Within the same day, and on a Saturday no less, I received a response from their client support staff:
When clients send crypto to their BlockFi account or purchase additional crypto within the BlockFi Interest Account, that digital asset is replaced with an obligation to return the same amount of that crypto plus any interest earned. In order to earn interest on their assets, clients must forgo the “right” to hold onto personal wallet keys and entrust their assets with us and our custodians, BitGo & Gemini.
Gemini is a fiduciary and qualified custodian under New York Banking Law and is licensed by the State of New York to custody digital assets. Gemini Custody™ is regularly audited and subject to the capital reserve requirements and compliance standards of a traditional financial institution.
To sum it all up, your funds are incredibly safe with us and our custodians.
Have a great weekend!
Best regards,
Arun
I appreciated BlockFi’s swift response and was pleased to confirm that BitGo and Gemini, two of the most high-level security custodians in the crypto space, are where BlockFi stores their digital assets.
For a breakdown of BlockFi’s client asset allocations, see the table below:
Click image to enlarge
You can see from the table above that they’re moving toward placing more of their assets in Gemini and BitGo, which provides less risk of loss over loans. The more BlockFi allocates digital assets into 3rd party custodians, the safer I feel my investments will be. Of course, it is up to you to decide what your limits are.
Summary and Review
In this article, I’ve gathered that BlockFi offers a safe and secure way to manage and maximize cryptocurrency investments.
We’ve learned that the two custodians they use to store client digital assets are Gemini and BitGo, which are two of the most trusted custodians on the market. And we’ve also learned that BlockFi offers market-leading interest rates.
It’s also worth noting that, as of March 31, 2021, they have never been subject to a lending loss on any of its loans.
“As of March 31, 2021, no borrowers showed signs of default on payment and, to date, BlockFi has never incurred a lending loss on any of its loans.” – BlockFi
More On Security
In addition to the security that their custodians offer, BlockFi itself has a notable set of security features.
The BlockFi platform has built-in security measures like regular identity verification, two-factor authentication (or 2FA), and “allowlisting” (preset crypto wallet addresses for frequently used crypto wallet addresses; allowing for error-free crypto sending).
All of these features are important layers of protection that keep clients and their investments safe.
In my opinion, BlockFi is a safe and secure platform.
It’s why I store my bitcoin and Ethereum with them and it’s why they’re the platform of choice that I recommend to friends who ask about these things.
My experience with BlockFi has been exceptional, from their app design, customer support, and of course their packaged deal of interest-earning potential and security.
So, until some other crypto service comes along and outshines what BlockFi has to offer, I’m happy to earn interest with BlockFi.
Don’t have a BlockFi Interest Account yet? Use my BlockFi referral link and we’ll both get $10 in bitcoin (BTC) if you deposit $100 or more into your account.