So you bought some Bitcoin and Ethereum during the last crypto bull run. Now your holdings have pulled back significantly from their all-time highs. But what if I told you there was a way to earn passive income on your crypto while you continue holding onto it?
Introducing BlockFi – a platform that enables you to earn up to 7.5% annual yield on your Bitcoin, Ethereum, and other cryptocurrencies. With interest paid out monthly and no minimum balances or deposit fees, it can be an attractive option for earning on idle crypto assets.
In this detailed guide, I‘ll cover everything you need to know to get started with BlockFi, maximize your interest earnings, and weigh the risks.
What Exactly is BlockFi?
Founded in 2017 by Zac Prince and Flori Marquez, BlockFi is a financial services company that offers cryptocurrency interest-earning accounts, loans, and trading for institutional and retail crypto investors.
BlockFi allows cryptocurrency owners to earn passive income on their holdings by loaning their assets out to institutional borrowers and decentralized finance (DeFi) platforms. They can then provide a portion of the returns from these loans back to investors in the form of interest.
Some key facts about BlockFi:
- Based in New Jersey, USA and backed by major investors like SoFi, Winklevoss Capital, Coinbase Ventures, and others.
- Currently has over $10 billion in assets on platform and more than 500,000 retail clients.
- Offers up to 7.5% APY interest rates on a tiered scale with no minimums or deposit fees.
- Supported assets include BTC, ETH, LTC, LINK, PAXG, and stablecoins like USDC, USDT, GUSD, and more.
- Interest can be received in the crypto deposited or stablecoins like USDC.
- Also offers crypto-backed loans and trading services in select states.
Since its launch, BlockFi has quickly emerged as one of the most popular centralized crypto lending platforms alongside Celsius, Nexo, and Gemini Earn. But how exactly does it work and how can you get started earning yield on your idle digital assets?
Benefits of Earning Crypto Interest with BlockFi
Here are some of the main benefits of earning interest on your crypto with BlockFi:
High interest rates
BlockFi offers interest rates of up to 7.5% APY on your cryptocurrency holdings. This is significantly higher than the close to 0% APY interest rate offered by most traditional savings accounts.
For example, the average savings account APY is currently around 0.06% according to the FDIC. Contrast this to the 4.5% APY interest rate you can earn just for holding your Bitcoin or Ethereum with BlockFi.
The interest you earn with BlockFi compounds monthly, accelerating your effective yield. For instance, the interest you earn in January gets added to your account balance, which then also earns interest every day starting in February.
Over months and years, compound interest can greatly increase your crypto holdings. Your money makes money on top of the money your money makes!
After depositing crypto into your BlockFi interest account, you can sit back and let your holdings earn passive income with no extra work required on your end. There‘s no need to actively trade or engage in other yield strategies.
This makes it appealing for long-term, buy-and-hold crypto investors who don‘t want to spend time "yield farming."
No minimums or deposit fees
There is no minimum balance required to earn interest with BlockFi. You can open an account and start earning interest with as little as $100 worth of crypto.
BlockFi also does not charge deposit or withdrawal fees like some other platforms. You can withdraw your crypto assets freely at any time.
BlockFi Interest Rates and Tiers
BlockFi offers tiered interest rates on various crypto assets based on your account balance.
Here are the current BlockFi crypto interest rates as of March 2022:
|Crypto||Tier 1 Balance (0 – 0.25 BTC/ETH)||Tier 2 Balance (0.25 BTC – 5 BTC)||Tier 3 Balance (5 – 40 BTC)||Tier 4 Balance (40 – 200 BTC)||Tier 5 Balance (200+ BTC)|
|Bitcoin (BTC)||4.5% APY||1.5% APY||0.25% APY||0.1% APY||0% APY|
|Ethereum (ETH)||4% APY||1.5% APY||0.25% APY||0.1% APY||0% APY|
|Litecoin (LTC)||3.75% APY||1.5% APY||0.25% APY||0% APY||0% APY|
|Link (LINK)||4% APY||1.5% APY||0.25% APY||0% APY||0% APY|
|PAX Gold (PAXG)||4% APY||1.5% APY||0.25% APY||0% APY||0% APY|
|USD Coin (USDC)||8.5% APY||5% APY||0.1% APY||0% APY||0% APY|
You‘ll earn the highest interest rates on the first 0.25 BTC or ETH in your account. Rates decline based on higher balance tiers.
Rates can fluctuate so be sure to check BlockFi‘s website for their latest offerings.
How BlockFi Generates Yield for Depositors
You may be wondering – how is BlockFi able to pay such high interest rates on crypto assets? Where does this yield come from?
The interest paid to BlockFi account holders comes from them lending out deposited crypto to trusted institutional borrowers and DeFi protocols.
These borrowers are typically overcollateralized, meaning they post collateral worth more than the loan amount. This provides protection in case the borrower defaults.
Specifically, BlockFi generates yield through:
- Institutional crypto lending – Loans are provided to hedge funds, market makers, and other large entities looking to borrow crypto.
- DeFi lending protocols – Deposits are made on decentralized platforms like Compound, Aave, and Yearn Finance.
- Asset trading – Trading activity generates returns.
- Yield farming – Staking rewards are earned by providing liquidity on DEXs.
The income generated from these activities is passed back to accounts holders after BlockFi takes their cut. This enables you as the depositor to earn a yield.
Of course, this does mean you have to trust that BlockFi is able to properly manage risks across its lending and borrowing activities. More on the risks later.
Step-by-Step Guide to Getting Started with BlockFi
Ready to get started earning a yield on your idle Bitcoin or Ethereum? Here is a step-by-step walkthrough on how to start using BlockFi:
1. Sign up for a BlockFi account
Head over to BlockFi.com and click "Get Started" to create your account.
You‘ll need to enter your email, create a password, and confirm you are over 18 years old. Be sure to use a referral code when signing up to get a Bitcoin bonus.
BlockFi sign up page
2. Verify your identity
The next step is verifying your identity by submitting a picture ID (driver‘s license, passport, etc). You‘ll also need to do a selfie check.
This process may take 1-2 days for approval but helps BlockFi remain regulatory compliant.
3. Deposit crypto
Once your account is verified, navigate to the funding page and choose which crypto you want to deposit. This includes BTC, ETH, stablecoins, and others.
Copy the address for the asset then withdraw it from the platform holding your crypto (e.g. Coinbase, MetaMask, etc).
For example, to withdraw BTC from Coinbase:
- Click withdraw in your BTC wallet
- Paste the BlockFi BTC address
- Enter withdrawal amount
- Review and submit the transaction
Withdrawing crypto from Coinbase to BlockFi
It takes 30-60 minutes for the network to process the transaction. Once received by BlockFi, interest will start accruing.
4. Earn interest
Now just sit back and watch your crypto assets earn daily interest. Your earned interest will compound monthly.
You can withdraw your crypto and accrued interest any time with no fees or penalties.
BlockFi crypto interest account
That‘s the basics of getting started with BlockFi! Just open an account, deposit crypto, and let your coins work for you.
Maximizing Interest Earnings with BlockFi
Here are some tips for maximizing the interest rate and yield earned on your crypto with BlockFi:
Deposit stablecoins – The highest rates are paid on stablecoins like USDC and GUSD. Put spare cash into these rather than letting it sit in the bank.
Ladder deposits – Spread deposits across multiple tiers to earn higher rates on each tier. For example, deposit 0.25 BTC and 0.3 BTC instead of 0.55 BTC.
Reinvest interest – Compound earnings by leaving earned interest deposited in BlockFi to grow your balance.
Refer friends – Earn $10-$20 in BTC for each friend that signs up and deposits at least $100.
Take out a loan – Interest earned can offset loan interest when borrowing against your crypto.
Automate deposits – Set recurring transfers into BlockFi to build your balance over time.
With the right deposit strategy, you can optimize interest earnings on your crypto holdings.
Risks and Drawbacks of BlockFi
While BlockFi offers an easy way to earn yield on crypto, there are some risks and drawbacks to consider:
- Rates can drop – BlockFi interest rates have fluctuated lower over time. No guarantee rates won‘t decrease further.
- Security incidents – BlockFi was hacked in 2020, putting some user data at risk.
- Regulation uncertainty – Changing laws around crypto lending could impact BlockFi.
- No FDIC insurance – Cryptocurrency holdings are not FDIC insured like bank deposits.
- You must trust BlockFi – Platform could mismanage loans or be hacked again.
- No direct ownership – You rely on IOUs rather than owning the underlying crypto.
For these reasons, you may not want to put your entire crypto portfolio into BlockFi. Consider only depositing a portion of holdings rather than going "all in."
BlockFi vs. Other Crypto Interest Platforms
How does BlockFi compare to other top centralized finance platforms for earning crypto yield? Here is a quick comparison:
|BlockFi||Up to 7.5%||Tiered rates, no minimums||BTC, ETH, Stablecoins|
|Celsius||Up to 17%||No tiers, $200 minimum||BTC, ETH, Stablecoins|
|Nexo||Up to 12%||No tiers, $100 minimum||BTC, ETH, Stablecoins, Fiat|
|Gemini Earn||Up to 8.05%||No tiers, no minimums||BTC, ETH, Stablecoins|
|Voyager||Up to 12%||Tiered rates, $100 minimum||BTC, ETH, Stablecoins|
While BlockFi offers very competitive rates, Celsius and Nexo can provide higher yields with different deposit requirements per their terms.
Do your research to determine the best fit based on supported assets, rates, risks, and minimums required.
Tax Implications of Earning Crypto Interest
One important thing to note is that the crypto interest you earn from BlockFi is considered taxable income by the IRS.
Your interest will be taxed based on the fair market value in USD at the time it is paid out. This is true whether you receive the interest in crypto or stablecoins.
You may get a 1099-MISC form from BlockFi come tax time. Be sure to report your earnings!
Consult a tax professional to understand how to properly account for crypto interest earnings on your taxes.
Risks and Rewards of Crypto Interest Accounts
While BlockFi makes it simple to earn yield on idle crypto assets, be aware of the risks involved compared to just holding your own crypto.
- Earn up to 7.5% APY interest
- Interest compounds monthly
- No lockup periods
- Interest paid out monthly
- Insured against hacks/thefts
- Rates can decrease over time
- Crypto assets are loaned out
- Smart contract risks on DeFi lending platforms
- Regulation uncertainty
- No FDIC insurance protection
Crypto interest accounts can provide nice yields, but do not put in more than you are willing to lose. Use them as one part of a balanced investment portfolio.
BlockFi makes it easy for long-term crypto holders to earn interest on their Bitcoin, Ethereum, stablecoins, and other assets. With competitive rates, monthly compounding, and no lockup periods or minimums, it offers an attractive way to grow your crypto.
Just be sure to understand the risks with crypto lending platforms, and consider depositing only a portion of your overall holdings.
Now that you know the basics of how BlockFi works, try depositing some Bitcoin or Ethereum to put your idle crypto to work earning up to 7.5% yield! What interest earning strategy will you use?