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The End of BlockFi?

By johnwege | johnwege | 26 Nov 2021

If you have followed any of my previous posts, you will know that one of my biggest passions in the cryptocurrency market is being able to earn a sizable passive income from it.  I have delved into all the most popular methods to earn a passive income such as lending, staking, mining, farming and more.  Because it is a topic that is near and dear to me; it means that I'm always researching the best possible options available and also the latest news involving this market.  One of the most profitable ventures for me has been lending out my bitcoin to third party services for paid interest.  For a few years my favorite service to use was BlockFi.  They had a great image with big funding backers.  They paid out great rates, and I was also a fan that they weren't offering their own token.  I used them for a few years heavily and everything was great until the first of half of 2021.  That is when everything changed for BlockFi.

This was when they dropped their rates for bitcoin drastically for the first time.  If it was only one time that is very understandable.  But it kept happening month after month after month.  Not only that, but they tried to give out a image that they were still offering high interest rates, but had in fact changed their lending tiers.  Making it so that if you are holding anything over 0.10 BTC, than it is not worth being a BlockFi user.  Dropping rates is one thing, in fact, I find it very understandable.  You would want to do business with a financial business that adjusts to the market situation to better position themselves to stay in business and not lose your money.  After all, the worst scenario would be that they went bankrupt and everyone's cryptocurrency would be lost.  It is important that since BlockFi dropped their rates, other lending services have also followed suit or at least changed their reward tiers.  This includes Celsius, Ledn and also Nexo.  But, no one has changed their rates anything close to what BlockFi has.


But there are rumors that made me worried about the financial stability of BlockFi.  Around the time that BlockFi first began changing their rates, rumors circulated that they were on the verge of becoming financially insolvent.  This was brought on by their extremely aggressive arbitrage play of the grayscale bitcoin fund premium.  This fund would often be selling for 15%-25% about bitcoin's normal selling price.  BlockFi was into this heavily. They would accept users money onto their system, and then take advantage of that large premium.  Things were going very well, until it didn't. That Grayscale premium eventually became just as large of a loss.  Selling for 10%-20% losses.  It was rumors that this was the largest method that they used to pay users interest and when this failed, times became very frantic.  And so they had far too much bitcoin on their service and needed to get rid of it to minimize losses.  This is why they kept cutting interest rates months after month after month.    They then needed to shift back to earning revenue by people taking loans and earning off that loan interest.  The problem was that they had grown too large, too quickly.  And the revenue from loans had been cut quite a bit, because the mood in the market had changed drastically caused by the mini bear season.

But all would be okay.  Their next big hope was their Bitcoin reward credit card.  A credit card that gives cash back in bitcoin rewards; the first of its kind.  I must be upfront and tell you that I am a user of their credit card.  Not because I think its a great product, but because I'm happy to earn bitcoin from my every day purchases. But this has been a whole new mess for BlockFi as well.  When the credit card was first unveiled, along with its rewards, the card was heavily criticized.  Mostly for the fact that it had a $200 annual fee.  This fee would wipe out most, if not all rewards for many users.  Thankfully BlockFi reacted to the criticism and dropped the annual fee.  But, it is possible that they were really relying on this annual fee to fund their company and this credit card.  They had budgeted everything with that annual fee income in mind.  One of the key card rewards that I was a fan was that they would offer +2% bonus in interest on stable coins held in your account.  A sizable amount.  But just a few weeks ago they came out and announced that they would be eliminating this feature for new cardholders.  Only a few months after their credit card first appeared on the market.  Another move that makes me question how well they are doing financially.


And finally just this week another huge announcement came out of BlockFi.  They announced that they would be eliminating free withdrawals for Ethereum and their ERC-20 coin offerings, while still maintaining 1 fee withdrawal per month for stable coins and BTC and other chains.  I understand the move.  Ethereum fees are at an insane level right now, and it must be hurting their bottom line.  And I think this was probably unavoidable.  I just don't like how they did this.  They made this announcement towards the end of the month (when many people had already used their 1 free withdrawal), right before a major American holiday when many people may not notice, and also said it would take place just 7 days later.  Usually, a company would give a much larger notice to allow customers to get their accounts settled and move if that is what they wish. But people who had already used their free withdrawal were trapped.  Withdrawing Ethereum would now cost a fee of around $75 or more.  With BlockFi now catering towards smaller users, this would most likely wipe out all of a person's earnings on their service.  When a company has to make such a quick move, it makes me question what its financial situation is looking like.

The point of this article is that I am wondering what is BlockFi's plan.  They have burned larger users and they have moved off the platform.  With the interest rate tiers, it now doesn't even make sense to have a medium amount of BTC or ETH on the service, and now medium-sized users are moving off the platform.  While the service is still enticing for people new to crypto.  Their ETH is now trapped, and if they wanted to withdraw it would eliminate all of their earnings most likely.  That use case is gone.  And so we are left with the credit users.  But to be honest, those reward options are becoming worse, and the other options aren't that enticing.  Rivals will come and offer better rewards with bitcoin and crypto.

So who is BlockFi's user? And should we be concerned about its future? I mentioned before, that BlockFi used to be my favorite service.  But now I'm constantly on the move taking advantage of better rates and promos offered by other companies.  Remember that if you can earn a few extra dollars, a few hundred dollars, or even a few thousand dollars from optimizing for the best rates.  The way the crypto market is heading, that could become a fortune in the future.  Do your own due diligence and research.


How about you? What do you think about BlockFi? What services do you like for lending your bitcoin, Ethereum, and other cryptocurrencies?



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