BlockFi CEO Zac Prince explains in depth how the startup manages the myriad risks of lending and borrowing crypto.
BlockFi To Pay 6.2% APR In Bitcoin And Ethereum
Forbes reports that BlockFi, a company that raised $52.5 million from investors like Novogratz’s Galaxy Digital last July, has launched a game-changing product. BlockFi has reportedly given clients across the globe the ability to make up to 6.2% annual interest on Bitcoin (BTC) and Ethereum deposits. This “interest account” offering will go alongside BlockFi’s loan offering, which allows users to borrow more than $2,000 at a 4.5% interest rate if they deposit collateral denominated in three leading cryptocurrencies. In an announcement, Zac Prince of BlockFi explained:
“BlockFi is the first crypto challenger bank. Bitcoin and crypto lending, especially to retail investors, is a nascent market. It has though been pushed on by institutional interest over the last year or so.”
The Winklevoss Twins’ Gemini Trust will be backing the novel offering through custody, which has full insurance coverage.
Will It Depress BTC?
Although the premise of this venture makes sense, some are wary it could depress BTC over time. Industry commentator ObiWan touched on the subject matter in a recent Twitter thread. He noted that BlockFi rehypothecates the capital users deposit, which means the company reuses collateral to borrow cash, creating an environment that can be rife with trading of the rehypothecated asset, “inflating the asset value [a handful of times] with multiple claims and no backstop.”
Obi claims that Wall Street and “shadow banking entities” use such a strategy to create “paper claims” (derivatives) on pledged assets. While many argue that Bitcoin isn’t susceptible to such a happenstance, as it is the hardest money (Saifedean Ammous) in existence by Austrian Economics standards. But the introduction of BlockFi’s deposit account could turn the tables. Wall Street hotshot turned Bitcoin diehard Caitlin Long argues that BTC spot could be depressed by synthetic BTC, created through derivative products, as this would push the ‘supply’ of the cryptocurrency above 21 million.
He isn’t the only one who expects rehypothecation to curb the value of digital assets. Per previous reports from Ethereum World News, Su Zhu of Three Arrows Capital, hinted at the sentiment that the introduction of Ethereum futures could push the value of ETH lower.
Not Your Keys…
This isn’t the only controversy about the startup’s newfangled investment vehicle. Prominent Bitcoiner John Carvalho hinted at his thought process that lending your funds to BlockFi is totally going against ‘being your own bank’, before bashing a Twitter user who was ‘shilling’ the project through a referral link.
In the sub-tweets of his original quip, Carvalho noted that Peter McCormack, a podcaster hosted by BlockFi, was in the wrong for accepting a sponsorship with a questionable offering. Although McCormack defended his position, drawing a fine line between having a sponsor to keep the lights on and senselessly shilling, Carvalho was adamant that pushing such a product was irresponsible.
All this comes just weeks after the Proof of Keys event, headed by Trace Mayer, in which its proponents claimed that it was irresponsible to hold Bitcoin (and other cryptocurrencies for that matter) with third parties, even if they are trusted and respected by the community.
Photo by Joshua Earle on Unsplash
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Cryptocurrency lending startup BlockFi has launched a deposit account that it says provides 6.2 percent compound interest annually.
BlockFi, a startup that offers U.S. dollar loans against crypto collateral, has raised $4 million from Mike Novogratz’s Galaxy Digital and others.
Crypto-lending firm BlockFi raised $52.5 million in a fundraising round led by Mike Novogratz’s Galaxy Digital, Business Insider reported Tuesday.
BlockFi, which aims to lend individuals and companies loans using bitcoin and ether holdings as collateral, plans to use the funds to grow the business outside of the U.S., as well as add support for more digital assets to the platform.
The startup offers services in 35 U.S. states and functions similarly to a traditional bank in that it holds clients’ funds with a registered custodian and reports loan performance information to the major credit bureaus.
The company is now looking to expand to more states and other countries, as well as add additional cryptocurrencies and new products. These products could include fixed-income and debt investments, lines of credit and credit cards, BlockFi CEO Zac Prince told Business Insider.
As part of this expansion, the company has hired former Bank of America managing director Rene van Kesteren as chief risk officer.
The funding round follows BlockFi’s previous $1.55 million raise from ConsenSys Ventures, SoFi and Kenetic Capital. ConsenSys managing partner Kavita Gupta previously told CoinDesk that she believed that BlockFi’s work can reduce volatility on the cryptocurrency market.
“This market needs access to debt beyond fragmented, short term margin trading options in order to reduce volatility, facilitate scale and put the financial infrastructure for this ecosystem on par with other asset classes,” Gupta said.
Mike Novogratz, an outspoken cryptocurrency advocate and investor, raised $250 million earlier this year for Galaxy Digital which is designed to to trade and manage cryptocurrency assets and consult blockchain startups.
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New York-based startup BlockFi, which provides loans to crypto-asset owners using their bitcoin and ether holdings as collateral, has secured $1.55 million in a just-closed funding round.
The company, which received backing from ConsenSys Ventures, SoFi and Kenetic Capital among others, wants to “bridge the gap” between capital markets and the cryptocurrency ecosystem, according to a press release. In doing so, the company expects to tap into a market of new investors who need to borrow funds.
While the company does deal with crypto assets, it otherwise functions as any other lender would: clients’ cryptoassets are held by a registered custodian and loan performance data is reported to the major credit bureaus to update borrowers’ credit scores.
BlockFi chief executive Zac Prince said the existence of crypto assets has opened up new opportunities in lending, according to the statement.
“By bringing institutional quality technology infrastructure, data science, risk management and operations to the cryptoasset market, we aim to be the leading lender in the cryptoasset market and a leading provider of low cost credit globally.”
The company will initially operate in 35 U.S. states, lending to individuals, companies and institutions.
BlockFi’s mission will help reduce volatility in the crypto asset market, said ConsenSys managing partner Kavita Gupta.
“This market needs access to debt beyond fragmented, short term margin trading options in order to reduce volatility, facilitate scale and put the financial infrastructure for this ecosystem on par with other asset classes,” she said.
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