Disclosure: I may earn affiliate revenue or commissions if you purchase products from links on my website. The prospect of compensation does not influence what I write about or how my posts are structured. The vast majority of articles on my website do not contain any affiliate links.

Extra disclosure: I am a FINRA-registered securities trader. I am not licensed to give investment advice or analyze securities and I do not provide investment advice. I do not manage investments for others. This post should not be construed as investment advice. I am providing my opinions on this alternative asset for informational purposes only. I have not been compensated directly for writing this post (this is not a “paid” or “sponsored” post) and my only prospect for compensation is through this provider’s referral program.

The Purpose of Investment Deep Dives

I’m curious about new ways to make money. Investigating investment opportunities and asking the hard questions excites me. I’m not here to restate facts that you can find on a website or to provide templated side-by-side comparisons. I do not blog for a living; I do not view my blog as a business. My goal is to pose informed opinions and eccentric questions that force you to think about investments in different ways. I don’t try to distill things to a “yes” or “no.” I frame things how I want without any underlying motivation other than to help you make more informed decisions with your money.

BlockFi Overview

This is the part where most other websites restate everything listed on a provider’s website. I will keep this brief.

BlockFi is a platform providing cryptocurrency financial services with features similar to a traditional bank. While most of the attention has been fixated around companies that enable the buying/selling/trading of cryptoassets, Blockfi is gaining customers and investors due to its approach to crypto-lending, crypto credit card, and interest-bearing accounts with eye-popping interest rates. These products are all groundbreaking, especially coming from a US-based company.

BlockFi offers financial products that enable cryptocurrency holders to put their crypto to work.


Interest Rates on Deposits

BlockFi’s interest rates for deposits are subject to change. This is where all the attention is. You can earn a lot of interest at rates that haven’t been seen in the United States savings accounts since … a long time ago. I’ve provided a chart of fed funds rates there, which are correlated to the rates you can get both in savings accounts and for loans.

Investor Profile

At first glance, Blockfi is an attractive offering for the crypto-entrenched. If you hold large amounts of mainstream cryptocurrencies and want to earn significant interest, you’re probably ready to plow money into BlockFi. Your friends probably already have. For the crypto-curious or those wondering if it’s worth getting into the crypto space just to take advantage of the fat interest rates, it’s more complicated.

If you plan on holding your crypto for a prolonged period of time, it makes sense to hold it with BlockFi. You already know that nothing is really guaranteed but since you’re already in the crypto space you likely have a high tolerance for risk.

Now, what about a regular investor who isn’t on the crypto train yet? There are a few new things to consider. First is that the deposits aren’t FDIC insured since they aren’t cash. Remember, you technically don’t own the coins once you send them off to a custodian. You’re exposed to provider risk. Not only the solvency of the provider, but you’re also bound by whatever rates and terms are set by the provider. For example, interest rates could decline and then the fees for withdrawing could increase.

There’s also major exchange rate risk since, again, we’re not talking about US Dollars here. While you deposit your Bitcoin, you have no idea what direction it’s going to take. If it goes down by 20%, that 6% APY interest doesn’t sound so sweet. However, there are stablecoins, such as USDT, also offered.

How Do You Get Crypto onto BlockFi?

Well, you need money to make money. In this case, to earn interest. In the crypto world, there aren’t that many options for transferring fiat currencies, such as USD, directly to cryptos such as BTC. Further, there are fees and risks that accompany each option. It’s a hard fact that hobbled investor confidence and adoption in Bitcoin’s early days. Things have come a long way but it’s not exactly seamless.

If you want to stay self-contained on BlockFi, you can deposit USD for stablecoins. You can then trade a stablecoin for BTC on the platform and you’re done.

Alternatively, you can use Coinbase, which is a leading platform allowing you to transfer fiat currencies directly to popular cryptos without a stablecoin intermediary. It gives the ability to set recurring purchases (which I have used for years) and provides the Coinbase Pro platform for more advanced traders.

I also use Binance.us which has a better integrated trading platform and an overwhelming number of traded pairs. Between these three options, you shouldn’t have much trouble buying crypto and depositing it to your BlockFi wallet.

The Big Questions

In this section, I’ll work through some of the ‘hard’ questions. These are questions that are often posted online, asked by friends, avoided by generic bloggers, and even things I wanted to know myself. If any one of these questions ends up making or breaking the platform for you, I’d highly suggest clarifying with their customer support team, in case I’m wrong or things have changed.

How Does BlockFi Actually Earn Money That Goes Toward Interest Payments?

BlockFi leaves it vague when it comes to how the deposit interest is funded. If we look at the company as if it’s a traditional bank, though, there are a few obvious channels. First is the interest they charge on loans. I don’t know if there is publically-available information surrounding this, but it’s safe to assume that their active loan balance is significantly lower that their active deposit balance. In other words, the loan interest doesn’t come anywhere near to being able to pay the deposit interest obligations.

Next, there are fee schedules that accompany certain transactions and services–just like a bank. However, I doubt this covers much.

Another channel is fractional reserve banking, which I’d assume BlockFi engages in. The premise here is that maybe only 50% (note: this is a made-up number) of the deposited crypto (the “reserve”) is actually liquid and available at any time. The rest of it is being loaned out or invested in other ways, perhaps in speculative investments. While this type of thing is heavily regulated within US banks, I’m not aware of any precedent in the crypto space.

The last point is that BlockFi is a startup. Not all startups are profitable right out of the gate. If they have investor money, there’s nothing stopping this company from funding abnormally-high returns using the millions upon millions of dollars they’ve raised from investors.

Do I have to Pay Taxes on Interest Earned?

Yes. More info here directly from BlockFi’s excellent knowledge base.

Can BlockFi Adjust Interest Rates at Any Time?

Yes. To tell you the truth, I wrote most of this blog post a couple months ago then tabled it. The one thing I realized back then–and repeated to all my crypto-crazed friends–was that a rate drop was imminent. Sure enough, many of the interest rates were lowered and my “prediction” was validated. Realizing that many people weren’t expecting this to happen, I proceeded with finishing up and publishing this post.

It’s a balancing act for BlockFi and their investors. Sure, they’re offering these great services, but they don’t want to pay you any more interest than they have to. If they lower rates significantly, there will be a flight of capital so severe that it could actually bring down the firm. I’m not making a judgement about the financial stability of BlockFi, just stating that this is a real concern for any bank. Deposits are the lifeblood of a bank. If the deposits dry up and you have to exit other positions and loans at a loss to you, your business could unwind rapidly.

So, the good news is that BlockFi probably has 1-2 economists on staff analyzing the effect of any rate changes. It’s not all bad news. They also can assess increasing rates so as to incentivize customers to move from other platforms and to incentivize some people to move away from fiat currencies!

As someone using BlockFi, you must accept the fact that the interest rates are not fixed and are not guaranteed.

Well, can’t the rates be guaranteed?

Y-y-es. I hesitate to say this without doing more research, but it’s highly likely that we’ll see more providers offering certificates of deposit and bonds, especially in stablecoins. I know that these exist on some other platforms, but this is a bit of a rabbit hole and I don’t want to direct readers anywhere without having done my own due diligence.

There are competitors in the space and early adopters are fleeting. It’s likely that a similar business will indeed offer quasi-fixed rates in order to attract some dissatisfied users away from BlockFi.

Is There a Minimum Balance? How often is interest paid?

There is no minimum balance. There are “maximum” balances for certain cryptos in certain tiers–the interest decreases as your balance exceeds certain thresholds.

Interest accrues daily but pays out monthly. This requires less administrative work for the company and gives them a bit of wiggle room in case things are tight. Based on my experience, payment has never been late.

Is This Really Like a Bank Account I Can Withdraw From Immediately?

This is where things get a bit testy. Obviously, more people have deposited into BlockFi than have withdrawn–simple math. The site is not exactly forthcoming about how long it’ll take to receive your withdrawal if you do want to withdraw.

For example, when I try to withdraw funds, this makes total sense to me. 1 day hold for “security” reasons. I think that’s agreeable, even though this benefits BlockFi immediately in that it can prevent the equivalent of a virtual bank run. It’s not clear to me whether they reserve the right to totally turn off, or effectively turn off, deposits. How such a thing would be viewed legally–I wouldn’t want to be on either side of that case.

When it comes down to it, there are tons of people on the internet complaining about elongated withdrawals from BlockFi. Here, here.

Then there’s some fine print worth reading.

This appears to specify that the withdrawal can take seven days to be initiated. You’ve heard this before, but a week can feel like a lifetime in the crypto world! There are also complaints about identify verification. I can speak to this myself in general, it just took me over a month (with 3 rejections) to verify my identity with Binance. While I appreciate safety measures that would shield users from malicious activity, all this red tape must be terrifying for those holding hundreds of thousands or millions of USD in crypto.

What About DitchBlockFi?

There was a website that sprung up a few weeks ago that presented a negative view of BlockFi. BlockFi didn’t have an official response, but said that the data was inaccurate and that the site was created by a competitor. The site is no longer functioning after the competitor was positively identified due to domain registration not being private.

Thread concerning speculation and un-official BlockFi response.

How Does BlockFi Custody Assets?

Blockfi provides a page here that explains everything, including that they do invest in plain old securities, which I found very interesting. They custody assets with Coinbase, Gemini, and BitGo. This means that they have some exposure to these custodians, should something happen to them.

So, should I deposit assets with several different providers of interest-bearing accounts?

You certainly can. Is it worth the hassle with the extra administrative and tax legwork there? Probably not, especially if you don’t even have a full bitcoin. Personally, I use many different wallets but only BlockFi as an interest provider. It’s true that you don’t own the coins if you don’t have the keys, but I’m confident enough in BlockFi to hold a decent chunk of crypto there.


You’ll be hearing a lot about BlockFi over the next few years as it morphs into a more traditional financial institution. Personally, I’m a fan of what they’re doing and a supporter of the legitimacy they are giving to financial services in the crypto space. For those looking to earn interest, it remains a solid choice albeit with a few risks and a withdrawal process that can be annoying.

I will modify this post as needed but please verify any of my claims and opinions against other sources of information, as I am neither a banking expert or a full-time blogger!

BlockFi Deep Dive