Note: You can change your preferred interest payment type up to 48 hours before month-end. Do check with support if there is any kind of cost associated with the interest payment flex feature.
A lot of countries do not offer more than 3-4% as an interest rate. What you could do is, you can buy a stable coin like USDC from an exchange like Binance or Gemini, and deposit the same to BlockFi, and start earning more interest than a typical bank account.
Update: You can also directly wire the amount to BlockFi Wire purchases, which has a minimum limit of $10 only to fund your BlockFi account directly. Your deposited fund will be available as a stable coin (GUSD) on the BlockFi account and will start accumulating the interest.
Of course, it has its own risk since BlockFi clearly mentioned on their website that “you should not view the BlockFi Interest Account as a savings account or brokerage account with FDIC or SIPC insurance.”
This reminds me of the popular crypto investment wisdom: “In crypto, you should only invest the amount you are ok to lose”. At least, until the point when services are not regulated like the traditional financial system.
In the further section, we will learn how BlockFi pays such a high interest rate and how they make money. This will clear a lot of our doubts.
2. BlockFi Crypto-backed loan:
As the name suggests, this feature lets you take a loan in USD, GUSD, USDC from BlockFi using your crypto assets as collateral. That means you can deposit your crypto assets and take a loan up to 50% of its value.
A loan’s LTV (loan-to-value) ratio determines the amount of crypto collateral you need to post in order to take out a loan. This number only applies when you’re getting a collateralized loan. These types of loans require clients to give the lender an asset, in our case digital currency, to hold until their loan is paid off.
A lot of crypto investors and holders use this technique to borrow funds when in need, rather than liquidating their assets. Another usage (which a lot of us are not aware of) is the tax benefits.
- Cryptocurrency is treated as property by the IRS. Trades, sales, and purchases using crypto are taxable events, subject to short and long-term capital gains/losses tax treatment.
- Borrowing USD against your crypto assets with a BlockFi loan is not a taxable event. This means you can access liquidity while keeping the same level of ownership and upside in your crypto holdings.
- The after-tax cost of borrowing can be reduced if you use the proceeds of the loan to make certain types of investments.
The borrowing rate keeps changing, and currently, a BlockFi interest rate starts at 4.5%. You can learn more about their crypto-backed loan feature here.
3. Trading Terminal:
Crypto trading is a new feature that BlockFi has added in recent times, and it is useful when you wish to liquidate some crypto assets because of the increased price and want to park them in a stablecoin. You can further, buy back the asset (example: Bitcoin) when the price is low. This is ideal for occasional traders, who want the comfort of: Earning interest and trading (Sell when the price is high, buy when the price is low). I have often used this feature, and as an end-user, I find this very handy.
Alright, while you have learned about the top 3 offerings of BlockFi, it’s time to look at other important aspects of BlockFi.