On Tuesday (May 21), FinTech startup BlockFi announced that it had decided to adjust the interest rates (effective June 1) on deposits held in its Bitcoin (BTC) and Ether (ETH) interest accounts.
BlockFi, which is based in New Jersey, United States, was founded in July 2017 by Zac Prince (CEO) and Flori Marquez (VP of Operations) and launched in August 2017. Among others, it is backed by ConsenSys Ventures, Fidelity subsidiary Devonshire Investors, Morgan Creek Digital, and Mike Novogratz's Galaxy Digital.
In April 2018, BlockFi started offering USD loans collateralized by your cryptoassets (Bitcoin and Ether). Roughly six months later, it expanded the range of cryptoassets that it accepts as collateral to Litecoin and stablecoin Gemini dollar (GUSD).
"... users can securely store their Bitcoin or Ether at BlockFi and receive 6% annual interest, paid monthly in cryptocurrency. Interest earned in a BIA compounds monthly, delivering an industry-leading APY of 6.2%. The program has been in private beta since the beginning of 2019 and already holds over $10 million in assets from retail, corporate, and institutional crypto investors."
At the time, BlockFi CEO Zac Prince made the following comment:
"The launch of BIA is another significant step in BlockFi’s goal of becoming the go-to provider of financial services for crypto investors. Lending and borrowing is readily available at the institutional level, and we’re excited to leverage our relationships and capital markets expertise to provide utility and yield on digital assets for all crypto investors.”
The company also said that the BlockFi Interest Account "is available to customers worldwide,"and that "client assets are custodied at Gemini Trust Company."
BlockFi said that this product offered the following advantages over competitors:
- compound interest;
- institutional backing;
- interest paid monthly in crypto (i.e. in BTC if you have a Bitcoin interest account and in ETH if you have an Ether interest account); and
- no-notice withdrawals.
We also found out via the FAQ section of the BlockFi website that although "there is no minimum or maximum deposit for the BlockFi Interest Account," only "deposits over 1 BTC or 25 ETH will accrue interest" and that "6% interest will only be earned on balances below 250 BTC or 7500 ETH."
Sadly, on March 20, there was some bad news announced for holders of the BlockFi Interest Account with large balances (over 25 BTC or over 500 ETH).
BlockFi said that since the launch of the BIA program, it had discovered that "approximately 75% of BIA clients have a balance of less than 5 BTC or 150 ETH," and that the "median account balance is $7,000 USD."
Furthermore, it had seen "unanticipated demand from businesses like crypto hedge funds and VC firms," and realized that these firms open large BlockFi interest accounts "as a way to bolster their returns."
BlockFi added that "starting April 1st, only BIA balances of up to and including 25 BTC or 500 ETH (equivalent to roughly $100,000 and $70,000 respectively) will earn the 6.2% APY interest rate," while "balances over that limit will earn a tiered rate of 2% interest."
The second bit of bad news—this one affecting everyone not just BTC/ETH whales—was that from April 5, it will be "adding a flat withdrawal fee of 0.0025 BTC and 0.0015 ETH."
In today's blog post, BlockFi says that:
- BlockFi interest accounts now have "over $100 Million in assets under management";
- While the Bitcoin "borrowing and lending markets have developed into a vibrant and growing field," the Ether "lending market over the last couple quarters has become as stagnant as we’ve ever seen it."
- Last month's Q1 report by Genesis Capital showed that only 3% of their loan portfolio is in ETH.
- ETH borrowing rates at Poloniex and Compound have gone as low as 0.01%.
Therefore, effective from June 1, BlockFi is adjusting the interest rates offered for its interest accounts:
- BTC Interest Account: Interest rate on balances above 25 BTC is being increased from 2% to 2.15% (APY), while balances between 0.5 BTC and 25 BTC will continue to earn 6.2% (APY).
- ETH Interest Account: Interest rate on balances between 25 ETH and 100 ETH is being decreased from 6.2% to 3.25% (APY), and balances above 100 ETH will continue to earn 0.2% (APY).
Featured Image Courtesy of BlockFi