Is BlockFi’s Storyline “Too Good To Be True”?

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By Jim Duffy

Some things are just too good to be true – it seems.  In the cryptocurrency and blockchain world, that’s how I viewed my Bitcoin annual earnings of 6% on the BlockFi platform. In the end, having several bitcoin on BlockFi is no longer a good proposition for me and many others, who have been angered and disappointed at the recent pullback in rates.

BlockFi has been at the forefront of crypto lending and borrowing.  It is a centralised finance company (CeFi) that has been pigeonholed a bit like Coinbase.  One either likes them or loathes them for a variety of reasons.  Like Coinbase, BlockFi has several interesting investors and have no doubt that it has ambitions to IPO at some point in the future.  

BlockFi recently announced the completion of a $350M Series D funding round.  One notable investor Anthony Pompliano or “The Pomp”, has been outspoken on Twitter regarding his views on banks and the American banking system.  It makes sense then for his investment vehicle, Pomp Investments, to be sinking cash into BlockFi, which sees itself as: 

“A bridge between cryptocurrencies and traditional financial and wealth management products.” 

In short, BlockFi wants to be the new age bank that can provide lending, borrowing, custody, credit and debit cards and a whole lot more in the next few years.  It is exactly what many of us in the crypto industry want which is essentially putting some of the old legacy banks out pasture. 

But, while BlockFi makes it moves towards this structure, there are signs that it is already beginning to behave like a traditional bank, putting its own interest first.  And the crowds aren’t happy….including me.

I was very happy parking my Bitcoin with BlockFi to earn monthly interest.  The security seems good and the company is well managed by its CEO, Zak Prince.  Prince has now built a $3Bn valuation on BlockFi. That will have initial investors rubbing their hands, with big investment banks circling like vultures awaiting the IPO fashion parade. They’ll be hoping to get picked to bring it to the open market.  

There is no doubt that BlockFi is growing fast. Prince stated,

“Our conviction that digital assets are the future of finance has been vindicated by our client base, which grew 10X year-over-year in 2020 and has more than doubled since the end of 2020.” 

But, coinciding with the Series D raise, there has been a massive drop in the level of interest paid to users of the platform.  With 5 bitcoin on the platform at 6%, this particular I was comfortable earning a decent yield.  But, BlockFi has now slashed that 6% headline rate to the first Bitcoin only.  

This essentially killed off 4% on the rest of my deposit.  So, what did I do?  I immediately withdrew 4 Bitcoin and I am now looking elsewhere for a better return.  But, I am not alone.  

As soon as BlockFi made the interest rate reduction known, oodles of customers took to social media to vent, stating they would withdraw their Bitcoin forthwith.  Alex Mashinsky, entrepreneur and CEO of Celcius, a BlockFi competitor took to twitter to lambast BlockFi: 

I guess when you Block your users from financial freedom they move over to @CelsiusNetwork without even waiting for April 1 when @BlockFi rates drop by up to 90% for BTC and ETH holders.”

Mr Mashinky did not miss and hit the wall in tempting more ex-BlockFi customers to his own platform.  Celsius is currently offering 4.06% APY on Bitcoin.  It may prove too attractive to many as they jump ship.

All of this signifies that we need to be careful moving forward especially as companies like BlockFi and Coinbase become subservient to their new Wall Street masters post IPO.  Profits and dividends will need to be generated for investors.  What this almost always means is that the little guy – you and me – get shafted.  

Choose carefully where you put your crypto as too good to be true never lasts!

Note: Trading and investing in digital assets is speculative and can be high risk. Based on the rapidly changing business and regulatory environment of this nascent industry, this content should not be viewed as investment or legal advice.

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