If you’re a cryptocurrency trader, BlockFi offers options to do more with your crypto, including an interest-bearing account that pays up to 8.6% on your cryptocurrencies. That kind of APY is much higher than anything you’ll find in a traditional high-yield savings account, which is kind of incredible.
BlockFi is a cryptocurrency exchange that also offers crypto loans and a Bitcoin Rewards Visa Credit Card, the first-ever bitcoin rewards card.
There are some obvious benefits of opening a BlockFi account, but what’s the cash? Is BlockFi legit? My BlockFi review will explain all of their features, tell you how BlockFi generates income, and how they work to keep your crypto safe.
BlockFi Review 2021 — Earn Interest on Your Crypto, But Is It Legit?
What is BlockFi?
BlockFi is a financial services company that specializes in cryptocurrency. Users can take out crypto-backed loans, earn monthly compounding interest on their cryptocurrency, and trade cryptocurrency on the BlockFi app.
They’re still a fairly new company — BlockFi was founded in 2017 by Flori Marquez and Zac Prince. But they’ve been developing new products since their launch, including a Bitcoin Rewards Credit Card, which still hasn’t had a full release, but we can expect it soon.
Overall, BlockFi wants to help you do more with your cryptocurrency.
What BlockFi offers
BlockFi has a cryptocurrency trading platform, an interest-bearing account (that pays much higher than your average high-yield savings account), crypto-backed loans, and rewards credit card.
BlockFi Crypto Loans
BlockFi’s crypto loans let you borrow cash, as in USD, against the balance of your cryptocurrency account. It’s an alternative to unloading your cryptocurrency if you need cash, and you can borrow at a rate as low as 4.5%.
The rate you receive on your crypto loan depends on the kind of cryptocurrency you’ll use to back the loan, your balance, and which LTV (loan to value ratio) you choose. BlockFi’s loans are structured for a one-year loan term.
To get an idea of what your crypto loan terms would look like, here’s an example of a customer taking a $10,000 loan:
- 50% LTV at 9.75% interest rate requires approximately $20,000 in crypto as collateral
- 35% LTV at 7.9% interest rate requires approximately $33,000 in crypto as collateral
- 20% LTV at 4.5% interest rate requires approximately $50,000 in crypto as collateral
You can get a Bitcoin loan or use Litecoin or Ethereum to back your crypto loan. There’s a minimum loan amount of $5,000. Origination fees may apply; they average around 1% to 2%. There’s no penalty for early repayment.
While you’re in the loan period, if your crypto collateral price goes up, the price appreciation is yours to keep once you’ve paid the loan back in full. The same goes for any additional coins that come from forks or airdrops.
What happens if the value of my cryptocurrency drops during my loan period?
Cryptocurrency is notoriously volatile, and it’s possible to fall out of your LTV rate. Again, your LTV is the amount of collateral you need to post to take the loan. It’s based on the value of your crypto and the amount you’re borrowing.
If your LTV reaches 70%, it triggers a crypto margin call, meaning you need to add more collateral to your account to get back to a less risky LTV. BlockFi will let you know before your LTV gets to 70%, so you have time to act. But if you get to 80% LTV, BlockFi will start selling a portion of your crypto to bring your LTV back to 70%.
BlockFi Interest Account
BlockFi Interest Account (BIA) is an interest-bearing account where you can earn monthly compounding interest. The idea behind it is that instead of letting your cryptocurrency sitting on an exchange or in cold storage, you can put it somewhere to accumulate more capital.
After you open your account (which takes just a couple of minutes), you deposit your crypto and start earning interest the day after you deposit. Interest payments go out at the beginning of every month.
You can earn interest on the following coins: Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC), USD Coin (USDC), Gemini Dollar (GUSD), and Paxos Standard (PAX). But you choose which kind of coin the interest is paid in, which can be any of the coins I just listed, except PAX.
The benefit of choosing which coin you’re paid in is that you can use it to diversify your cryptocurrency portfolio, limiting your risk as the value of each coin changes.
There’s no minimum account balance for BlockFi Interest Accounts, and here are the current interest rates:
- BTC (Tier 1): 6% APY
- BTC (Tier 2): 3.0% APY
- ETH: 5.25% APY
- LTC: 6.5% APY
- USDC: 8.6% APY
- GUSD: 8.6% APY
- PAX: 8.6% APY
BlockFi Trading is a cryptocurrency trading platform that fits in seamlessly with any other services you use BlockFi for. You can buy, sell, or exchange coins, including BTC, ETH, LTC, and PXG, as well as USD-based stablecoin, such as USDC, USDT, GUSD, and PAX.
BlockFi executes your trades immediately after you place the order, and there aren’t any hidden trading fees. What makes BlockFi one of the best websites to trade cryptocurrency is you can start earning interest on your coins right away, and that’s because there’s no settlement time and because of BlockFi’s Interest Account.
Bitcoin Rewards Credit Card
This is the first ever bitcoin rewards card, and Visa backs it. The card is set to release to U.S. citizens in spring of 2021. BlockFi’s Bitcoin Rewards Visa Credit Card allows cardholders to earn 1.5% cash back in bitcoin on every transaction.
Your bitcoin cash back is deposited into your BlockFi Interest Account. Because there are no account minimums on your BIA, you can start earning interest on your cash back immediately.
The BlockFi card has a signup bonus of $250 in bitcoin if you spend $3,000 within your first three months. And it comes with other perks, like:
- 2.5% bitcoin rewards on all purchases in months 4-6 of card ownership, up to $100 in bitcoin
- 2% extra APT on your average daily stablecoin balance, paid in bitcoin, up to $200
- 0.25% back in bitcoin on all eligible trades, up to $500 in bitcoin each month
- $30 in bitcoin for every client referral
The card does have an annual fee of $200, but you can offset that in the first year with the sign-up bonus.
The BlockFi Bitcoin Rewards Visa Credit Card is issued by Evolve Bank & Trust. It will be available to all U.S. residents, except those living in New York because of regulatory restrictions.
It’s worth noting that the BlockFi card is different from cards like Coinbase or Fold, which are debit cards that let you spend your cryptocurrency balance.
How to open a BlockFi account
You can go to the BlockFi website to open your free BlockFi account. You need to provide identification, and then BlockFi walks you through funding your account with USD or crypto.
It takes up to 5 business days for deposit to clear and show up in your BlockFi account. Account holders get one free crypto withdrawal and one free stablecoin withdrawal per month. Fees vary after that depending on the kind of coin you’re withdrawing.
Is BlockFi legitimate?
BlockFi offers some impressive APYs on its BlockFi Account. Possibly too good to be true?
BlockFi is a completely legit company. BlockFi can pay you those kinds of rates because they are generating interest on assets held in Interest Accounts. They lend your assets to institutional and corporate borrowers. This is similar to how banks and free stock trading apps make money.
Is BlockFi a safe way to store my crypto?
Cryptocurrency is an inherently volatile asset, and putting your crypto in a BlockFi Interest Account is not the same as depositing money in an FDIC or SIPC insured checking or savings account.
BlockFi’s primary custodian is Gemini, regulated in the U.S. They go to lengths to protect your funds, including keeping most of your funds in cold storage.
BlockFi’s payout stack, which is how they prioritize payouts, puts clients first before equity and employee funds in the event of a loss. That should put you at ease to some extent.
Does BlockFi report to the IRS?
All interest earned on BlockFi accounts is taxable as ordinary income and needs to be reported at tax time. Also, if you sell any of your cryptocurrency, that’s seen as a taxable event.
BlockFi sends you a 1099-Misc form at the beginning of each year so you can report everything to the IRS when you do your taxes.
BlockFi Review — the final word
If you’re buying cryptocurrency, then you're already up for some kind of risk. BlockFi is risky because it deals in crypto, but it’s safer than other exchanges because it uses Gemini as its primary custodian and prioritizes clients in their payout stack.
What BlockFi offers users are more ways to use their cryptocurrency. From interest-bearing accounts and a rewards credit card. Crypto loans are another interesting offering, but you’ll need to fully understand what happens if your LTV passes the 50% threshold.
Bottom line: BlockFi is a legit company, but you need to understand the risks.