BlockFi interest accounts as savings earners

Why leave cash languishing in a savings account when it could be earning six percent in a USD stablecoin account?

My head has been racing with ideas recently. I had trouble falling asleep last night and got woken up by Elder this morning when she crawled into bed with me. Neither of us could fall asleep after that, so here we are, up an hour before our usual wake up time, on the couch, both of us with our laptops open. She’s working on Typing.com, and here I am with you.

Yesterday I opened a BlockFi account. They’re currently offering six percent on BTC and eight percent on Gemini and Coinbase’s USD stablecoins, as well as another Ethereum based USD stablecoin called PAX. The rates seem seems really high until you consider their lending options: over nine percent on BTC-backed loans. (We’ll leave the discussion of that for another day.) So they’re taking a small origination fee and a two or three percent spread. Seems like a decent business model. BlockFi was the first product on the market like this; I remember hearing them on a podcast last year, but more and more competitors are springing up such as Crypto.com and now Blockchain.com

Source: BlockFi. 05/21/2020

BlockFi uses Gemini for custody, which is good, but they’re not FDIC insured, so there’s a risk that customer funds could be lost if they get hacked, but I rate that risk low, since Gemini is focused on providing crypto custody services to the traditional finance industry, and they’ve got good controls. Still, I’m not ready to go all in with my funds quite yet.

I think that earning interest on my long term BTC is a great idea. I’m not ready to hand them over the bulk of my hard wallet, but I’m willing to try a small transfer until I feel more comfortable. The account signup process was pretty quick, I was able to sign up as an individual in a matter of minutes, and only had to provide my address and SSN for KYC.

Compared to the rates that Compound is offering right now, BlockFi is way higher. Since Compound is an Ethereum smart contract platform, they use wrapped BTC (which could cause a taxable event) and there is inherently more of a risk of a block swan like a contract failure or hack. BlockFi is relying on more traditional cold-storage custody solutions.

I didn’t want to break out my hardware wallet yesterday to move funds over to BlockFi, since I’d rather use it as an alternative to a savings account, so I started a small transfer from my bank in order to deposit to a USD stablecoin. That will take several days to clear. In the meantime, I’ll probably be transferring all of my LTC over there, (since it’s basically worthless to me at this point anyways,) and most of my ETH. I haven’t decided what to do about my BTC yet, but will probably be putting a fraction of my funds there at some point.

The advantage to keeping funds in BlockFi compared to traditional banking account is obvious, if one is comfortable with the risk. Missus is not, and curtly said “we’re not keeping our emergency fund in blockchain,” when I raised the subject. I however, am less risk-adverse than her, so I’m looking at it as an option to keep cash available for long term goals while earning considerable interest on it. For example, I’ve been planning on funding my IRA this year, instead of using the money to dollar cost average into Bitcoin, but I didn’t want to actually move the money to my IRA until near the April 15 deadline next year. In the event that I do need the funds for an emergency, I don’t want to deal with the penalty and hassle of withdrawing it. Putting it in BlockFi will allow me to compound it, as well as easily withdraw the entire balance back to my bank account when I’m ready.

If you are sitting on a lot of cash right now, and you should be saving as much as possible during these times, you may want to consider giving BlockFi a try. Please use my referral code.

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