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BlockFi is a FinTech company that’s quickly become a household name in the bitcoin and the crypto communities. BlockFi’s suite of products make it easy for users to store, manage, trade, earn and borrow with your digital assets. In this article, we breakdown why and how to use BlockFi’s services.
Cut to the chase
Digital assets like bitcoin, Ethereum and stablecoins currently have limited, but growing utility for different users. Bitcoin is used as a store of value, which is great for savers. Ethereum is used as fuel to power the decentralized applications running on its network, which is great for early adopters and developers. Stablecoins are predominately used for trading, which is great for jumping in and out of different cryptocurrencies. They have different utility for different folks, but speculation and investment are the main reasons to be holding these assets, which is fine for everyone but is there more?
Earn
BlockFi’s easy to use centralized service brings more utility to everyone holding the top digital assets. Users can earn interest on their idol coins, and pretty substantial gains when compared to the average bank savings account interest rate of 0.09% interest. The different digital assets and their corresponding interest rates are listed below.
Why is this a big deal?
Outside of the obvious higher interest rates, users are receiving interest payments on a monthly basis in these underappreciated assets. For example, if users deposit their bitcoin in BlockFi’s interest earning account for bitcoin, then they will receive their interest payments in bitcoin. Essentially, BlockFi is a limited risk opportunity to earn rewards in bitcoin, an asset with the potential upside of 10x-50x upside in the next 1-5 years. This asymmetrical opportunity spans across multiple top coins such as Ethereum and Litecoin, but also stablecoins and PAXG (Paxos’ synthetic gold token).
Stablecoin Opportunity
Stablecoins are synthetic digital assets that represent the value of the US dollar - $1. They can achieve their stable value via a fully backed and regulated reserve that has the equivalent value being held in a secure bank account and is convertible 1:1; such as GUSD (Gemini Dollar) or USDC (Circle’s Stablecoin).
For those users who don’t share our passion for cryptocurrency and only want to hold cash, BlockFi’s interest accounts are amazing ways to save and earn up to 8% APY on your dollars. This is a total game changer compared to your average savings account at a bank.
Gold Opportunity
Gold is an inflation hedge and a safe haven asset in times of uncertainty. With that said, gold should perform very well over the next couple years given today’s inflationary environment in markets. However, gold bugs would say that you need to own the actual physical asset, and not the paper IOU represented by an ETF such as GLD. Here, we agree and since gold is an insurance claim or an option on the future of our financial system. Plus, GLD has increased counter party risks since it only trades when traditional markets are open Mon-Friday from 9:30a-4:30p ET.
But, owning the physical asset has its drawbacks such as gold’s latency times for clearing and settling transactions. This is mainly due to the physical nature of gold - it’s clunky and it’s heavy.
We see Paxos’ Gold token (PAXG) as a great alternative for multiple reasons.
1 PAXG = 1 oz gold (LBMA accredited gold)
PAXG is fully convertible into gold
PAXG is a digital asset, which means it’s traded globally 365 / 7 / 24 and doesn’t carry the same physical drawbacks that gold and an ETF carry
Owning PAXG and storing it with BlockFi allows you to earn interest on your gold investment in a gold equivalent
We want to remind our readers 2 things. Digital assets sit outside of traditional markets and can be accessed any time without any 3rd party intermediary. This is important if there’s extreme risk within our existing system and you need to move assets outside of the system. Finally, we prioritize our investment thesis around “buying power,” which means at the end of the day investors will want to hold the assets that store value better than others. We believe bitcoin is the best store of value asset and will drain value from all other asset classes - stocks, bonds, real estate, gold, etc. Therefore, holding gold as an insurance policy with low transaction times can hurt you if you need to move into bitcoin at some point in time, quickly.
Borrow, Trade & Store
BlockFi makes borrowing against your digital asset investment seamless. Most people think that borrowing money is a tricky and risky endeavor. They would be correct. However, BlockFi makes the user experience fast, easy and simple for getting a crypto backed loan the same day. This allows users to access capital without selling their crypto investment. Now, you have exposure to a growing asset class and are liquid to pay down debt, meet operating expenses or invest in more cryptocurrency to put into your interest earning accounts.
Steps:
Open a borrowing account
Post crypto as collateral
Select loan-to-value ratio (LTV)
Get a USD loan in form of fiat or a stablecoin (same day)
Below is an example for a US/Domestic client taking a $10,000 loan:
50% LTV @ 9.75% Interest - requires ~$20,000 in crypto as collateral
35% LTV @ 7.9% Interest - requires ~$33,000 in crypto as collateral
20% LTV @ 4.5% Interest - requires ~$50,000 in crypto as collateral
Trade
There’s not many assets available on BlockFi, but they make it easy to trade the top digital assets on their platform with no fees using the available interest accounts.
Store
Storing bitcoin and cryptocurrency in a secure way is critical to investing in digital assets. This can be complicated when trying to use cold storage wallets to hold assets offline. BlockFi keeps their reserves stored securely with their primary custodian Gemini, a New York trust company regulated by NYDFS. Gemini is the Winklevoss company and leads the market for crypto custody solutions.
Conclusion
BlockFi is a great next step for investors after they make their move into cryptocurrency. They make it easy to learn about the basics for handling the assets - buying, sending and storing. They provide a great service to access more capital without selling out of your position. And, they’re an outlier when comparing interest earning accounts for digital assets like bitcoin, but also gold and cash.
Cheers,
Verks
**This is not financial advice. Investing in bitcoin and cryptocurrency is extremely risky. Please do your own research. The ideas and news presented in this newsletter are my personal opinions and meant for informational and entertainment purposes only.