Even the most die-hard crypto-evangelist can’t deny one of cryptocurrency’s biggest faults as an investment: crypto investments don’t generate income.
Stocks produce dividends, property generates rent, and even savings accounts produce a trickle of interest over time.
But your crypto wallet? Well, it just sits there like an old Ferrari in a barn, hoping not to be stolen or forgotten until the day you sell it.
Thankfully, BlockFi changes all that. Just like a traditional bank, BlockFi offers interest-bearing accounts, low-interest loans, and even a credit card – all based in crypto.
Since traditional banking and crypto may seem like diametric opposites, you may be bursting with questions:
- How can BlockFi manage to offer up to 9.3% APY when traditional banks can’t break 1%?
- How much can you earn by moving your cryptocurrency into a BlockFi account?
- Can you still buy, sell, and trade your crypto while it’s in BlockFi’s hands?
- What are BlockFi’s fees?
- Lastly, if I’m new to crypto, is BlockFi a good place to start?
I’ll answer these questions and more as we investigate BlockFi.
What is BlockFi?
On its Mission page, BlockFi calls itself a “financial services provider in crypto” seeking to “redefine banking.” For simplicity, it’s not inaccurate to label them a “crypto bank.”
Interestingly, BlockFi wasn’t principally founded to disrupt the traditional banking world, but rather, to extend its reach. The company plans to leverage the decentralized nature of cryptocurrency to:
“provide credit services to markets with limited access to simple products like a savings account.”
To Americans, BlockFi offers the following bank-y services:
- Interest-bearing savings accounts.
- Trading accounts.
- A rewards credit card (paid in BTC, of course).
- A dedicated customer service team.
- Account security.
- No hidden fees.
And more. Again, the twist is that it’s all based in crypto. BlockFi is a place to store, manage, and generate interest on your crypto, while you keep your cash in your regular bank.
How does BlockFi work?
Setting up a BlockFi account is pretty quick and easy, with no real surprises to anyone who’s set up a bank account. All in all, expect to invest 10 minutes or less.
You’ll start by heading to app.blockfi.com/signup to enter some basic info, confirm your email, you know the drill.
Once you’ve done that, you’ll choose your account type.
Next, you’ll dive into the meat of the signup process, sharing your address, SSN, and proof of identity. If you feel like BlockFi might be overstepping, don’t worry – this is all standard, federally-required stuff to prevent fraud.
BlockFi’s colloquial tone is a nice touch:
Once you submit everything, BlockFi will take a day or two to verify your account.
Once that’s done, all that’s left is to move your crypto into a BlockFi Interest Account (BIA) and you’ll immediately and automatically start earning interest. You can even get a preview of how much interest you’ll earn by playing with the BlockFi interest calculator:
How much does BlockFi cost?
True to their mission of “redefining banking,” BlockFi doesn’t intend to pepper its clients with hidden fees for every little action. Most of their fees are front-and-center on their fees page, with one minor exception that I’ll get to.
In terms of transparent fees, BlockFi charges a fee for withdrawing from your BlockFi Interest Account more than once a month (the first monthly withdrawal is always a freebie).
Here’s the current fee schedule for withdrawals:
For small-volume investors, this can be a pretty steep fee, so you may not want to consider a BlockFi Interest Account if you think you’ll need to make more than one withdrawal monthly.
Why such high fees? Well, BlockFi charges high withdrawal penalties for the same reason the Fed punishes you for touching your 401(k) before retirement: both institutions want you to leave your money alone.
The less often clients touch their money, the more effectively BlockFi can invest it – and more effective investing leads to higher interest rates for everyone.
This isn’t a “fee” per se, but BlockFi states that withdrawals under 0.003 BTC and 0.056 ETH may take up to 30 days to process.
Lastly, BlockFi charges loan-related fees. Here’s their current fee schedule. LTV is your loan-to-value ratio, meaning your collateral divided by your loan amount.
BlockFi’s “hidden” fee
Now, the only “hidden” fee I could find is BlockFi’s trading fee. Technically speaking, BlockFi doesn’t charge a flat fee for trading crypto on its platform like other exchanges do.
They do, however, bake a fee of sorts into the trading price itself.
Why the difference? Well, since the price of crypto is so volatile, BlockFi is taking on risk just in the 60 seconds it takes to facilitate the transaction. So to compensate for that risk, they add up to 1% on top of the market value and call the total price their “buying price.”
To be fair, BlockFi explains all this in a FAQ on their site. But many users still felt bamboozled when they realized they were paying up to 1% extra on every trade.
So while the “buying price” may be justified, BlockFi could almost certainly be more transparent about it. The fact that they claim “no hidden fees” on their homepage, but don’t directly address the whole “buying price” thing on their Trading Accounts page, feels a little disingenuous and oddly off-brand for such a transparent company.
But overall, BlockFi’s fees are well worth the services they offer.
BlockFi offers a compelling menu of features and services to crypto investors, ranging from crazy-high-yield interest accounts to low-interest loans. Let’s dive into each one.
BlockFi Interest Accounts
As you’ve probably surmised, BlockFi’s pièce de résistance is that high-yield BlockFi Interest Account (BIA).
While traditional banks struggle to offer more than 0.50% APY on interest-bearing accounts like savings and MMAs, BlockFi offers up to 9.3%. That’s truly insane – are there any caveats?
Well, their highest interest rates only apply to deposits of “stablecoins” like USDC and USDT. For the uninitiated, a stablecoin is a crypto-based currency that has a value that is tied to a real-world asset, like USD and gold. As the name implies, stablecoins are specifically designed not to appreciate or fluctuate like traditional cryptos, so their upside potential is extremely limited.
Thankfully, BlockFi’s interest rates on traditional cryptos are still dang high: up to 5% on BTC and 4.5% on ETH.
So even if you only have 0.25 BTC in your wallet, you can generate over $450 in interest in your first year.
And since that interest compounds, you’ll generate nearly $600 by year 10.
Of course, BlockFi’s rates may change over time, but the takeaway remains the same. With interest rates 10x higher than traditional savings accounts, a BlockFi Interest Account is practically a no-brainer for anyone with a pile of crypto they don’t touch more than once a month.
BlockFi lets you take out a personal loan in USD, putting up your crypto as collateral. The minimum loan amount is $5,000 with LTV (loan-to-value) ratios ranging from 20% to 50%.
Your LTV ratio is the amount of your loan divided by the market value of your collateral. So for example, let’s say you want to borrow $5,000, and ideally, score BlockFi’s lowest interest rate of 4.5%. You’d have to achieve an LTV of 20%, meaning you’d have to have $5,000 / 20% = $25,000 worth of crypto in your BlockFi account to serve as collateral.
Now, since BTC, LTC, and ETH aren’t stable forms of collateral, your LTV can fluctuate all over the place throughout the course of your loan. This may result in a change to your interest rate or even a cancellation of your loan.
Given the volatile LTVs, high origination fees, and ho-hum interest rates, you might find a better deal on a personal loan with a more traditional lender – especially if your credit score is above 700.
Related: The Best Personal Loans.
The BlockFi Rewards Visa® Signature Credit Card
BlockFi puts a crypto spin on virtually every service offered by a traditional bank, and its credit card is no different. The BlockFi Rewards Visa® Signature Credit Card is a widely accepted Visa® that offers 1.5% cash back on all purchases…in crypto.
At first, receiving your 1.5% cash back in bitcoins instead of USD may seem like little more than a gimmick. After all, you can always just go buy BTC with cash.
But having your credit card automatically generate free bitcoins for you is a bigger deal than it initially seems for two reasons.
First, it’s convenient. You’ll never have to remember to buy during the dip since you’ll be “buying” a little Bitcoin every day. No more crypto FOMO.
Second, earning crypto through credit card rewards points is one of the few ways left to earn crypto without paying trade fees or commissions. In effect, it’s like mining for people who can’t afford (or find) a high-powered graphics card.
There’s currently a waitlist for the BlockFi Rewards Visa® Signature Credit Card, so if you’re interested, you can hop in line now.
My experience researching BlockFi
For years, crypto investors faced a tough daily choice: hold or sell. Holding didn’t generate income, but selling at the wrong time could induce fees, taxes, and FOMO. Staking recently became an option, but staked ETH is untouchable for a set period of time (like a CD).
That’s why I’m glad BlockFi introduced a compelling alternative to holding or selling: saving. Having an interest-bearing account option is a huge win for the crypto community, generating income, stability, and peace of mind for long-term investors.
But while BlockFi supports this pillar of the crypto community, it undermines another.
BlockFi has a bullish, often cringey “crypto bro” vibe to its website. For example, the company waxes lyrical about Bitcoin’s 230% annualized return in 2020 while never addressing the significant risks of crypto investing.
To me, this is a baffling direction for their site copy because the crypto community is trying to move away from this “crypto bro” culture. Crypto’s reputation for being dominated by young, cocksure white men isn’t just exclusive; it’s bad for business.
Plus, after naive investors lost $1.7 billion on Bitcoin in 2018, other big platforms like Coinbase have massively ramped up their learning centers to educate the public on the upsides and the risks of crypto.
It would be refreshing, then, to see BlockFi doing more to support the crypto community on both fronts: inclusion and education.
Who is BlockFi best for?
All things considered, who is the ideal BlockFi client?
If your crypto holdings are just sitting around, putting them to work for you in a BlockFi Interest Account is practically a no-brainer.
Unlike a traditional savings or money market account, the current interest rates, far outpace the rate of inflation and are enough to generate several hundred bucks a year in extra income. Plus, if you ever need to liquidate your crypto holdings in a pinch, you’ll always get one free withdrawal per month.
Similarly, if you’re new to crypto, you’d be better off not day trading and instead, letting your initial investment mature over time while you continue to learn the ropes.
A BlockFi Interest Account is an ideal destination for a beginner’s crypto investment, then, since it’ll incentivize you to hold the line while generating passive income.
Who shouldn’t use BlockFi?
While BlockFi’s services are undeniably compelling, they’re still not for everyone. Who is not the ideal BlockFi client?
Crypto day traders
When you compare the BlockFi’s 5% APY (on BTC) to the measly 0.50% you’d get from a regular savings account, the choice is abundantly clear. But to a successful crypto day trader, 5% in a year probably doesn’t compare to what they can make in a week, even a day.
If you’re already seeing big gains from actively managing your crypto portfolio, you probably won’t be too keen on locking up your crypto in an account limited to a single monthly withdrawal – even for 5% interest.
In a more general sense, if you’re a low- to medium-risk investor looking for the right time to dabble in crypto, that time still hasn’t come. BlockFi’s interest rates are generous for sure, but they’re not enough to lessen the ultra-high risk of a cryptocurrency investment.