Is BlockFi’s 6.2% APY Interest Rates on Crypto Holdings Too Good to be True? Hedging Already Started
BlockFi had recently announced that it is offering crypto investors, an interest rate of as high as 6.2 percent annualized on parking their crypto holdings that involve Bitcoin and Ethereum along with other coins that they currently accept, with the firm.
The company that is backed by Bitcoin permabull, Mike Novogratz’s Galaxy Capital is planning to generate returns on these deposits by offering high-interest crypto loans in the institutional crypto borrowing market.
Some critics say it is an unrealistic interest rate as one was quick to point out that the final print states BlockFi has the discretion to change the offered interest rate from month to month.
BlockFi Already Hedging on its 6.2% APY
Just recently, New York-based company's Chief executive, Zac Prince said he is bullish on the crypto market and on BTC in the long term. He had further said the interest rate would be based on a combination of rates.
Regarding the company's ‘promise’ to not cut the interest rates to zero or to take them in negative, BlockFi has previously said, “Breaking users' trust would be “bad for business”” but looks like the company has already started making some careful changes.
In its recent blog, BlockFi shared that those BIA balances equivalent and up to 25 BTC or 500 ETH that is $100,000 and $70,000 respectively would earn the 6.3 percent APY interest rate. Balances above this limit would earn a “tiered rate of 2 percent interest.”
“To clarify, if you had 25.5 BTC in your BIA account, the first 25 BTC would earn interest at 6.2% APY and the remaining 0.5 BTC will earn interest at 2%. Additionally, on April 5th, we will be adding a flat withdrawal fee of 0.0025 BTC and 0.0015 ETH.”
BlockFi has reportedly lured about 10,00 customers that majorly involves large-collar accounts. These accounts have a total of $35 million in deposits and an average account size of over $40k.
The advertised 6.2 percent hasn’t been a guaranteed rate anyway as the company has been open about this when Price had said the rate will “definitely” change in the future.
“The way that it works is we will announce rate changes in advance of the change happening and they won’t go into effect immediately. We didn’t launch with a 6 percent rate with the intention of changing it one month later and pulling a big gotcha on everybody. That would be really bad business.”
But BlockFi has introduced a lucrative option for investors, who may see this opportunity to squeeze out more returns, especially in a bear market where bitcoin is down by 80 percent and Ethereum 90 percent. Moreover, for the long term holders, it is an attractive option to maximize the return on their holdings.