Bitcoin Global News (BGN)
March 21, 2019 -- ADVFN Crypto NewsWire -- In January of this year BlockFi began issuing a small number cryptocurrency backed loans. But just two weeks ago, the company began a new service for cryptocurrency custody, providing interest rates to retail and commercial investors as high as 6.2%. In just two weeks, the company has now issued $25 million in loans. This highlights one of the biggest issues with the current fiat financial system that fueled the grassroots growth of the cryptocurrency industry . Traditional banks provide standard interest rates for savings accounts that hardly even match the rate of currency inflation.
Lending or Savings
The BlockFi Interest Account (BIA) is running at 6% right now, but this is not set in stone. Interest is paid monthly in cryptocurrency directly to the customers account. But this seems too good to be true. The headlines have incited some deep research into how BlockFi is working behind the scenes. There are two products available right now, loans, and the saving account.
Institutional investors are allowed borrow crypto under individualized terms with interest rates from 4% to 12%. BlockFi holds the right to call in the loans at any time. And in times when crypto prices move dramatically, the company manages risks by making borrowers put up more collateral or selling some of it. For the savings accounts users have already deposited more than $35 million worth of cryptocurrency. This composed primarily of Bitcoin (80%), and the rest in Ethereum.
Essentially, the positive for consumers is that they are able to use their cryptocurrency in a way similar to how the fiat system is established. However, BlockFi does not maintain the same standards that banks due in terms of insurance and guarantees. So, although 6% is very high, the downside is that there is no real certainty that BlockFi will be an enduring company. Further, the company has the right to change that interest rate at their will.
The long term vision, is that establishing this type of market for cryptocurrency will help major financial institutions know the true value:
“The rate is a combination of the market and customer acquisition costs. This product will be for some amount of time, probably for for 3 to 18 months, a loss leader. We are OK with losing money for a while. If it was purely formulaic we probably wouldn’t have enough control to make sure it’s attractive enough to a large amount of people to hit our customer acquisition targets.” - CEO and founder Zac Prince
By: BGN Editorial Staff