“It Was Inevitable,” BlockFi Slashes Rates for BTC & ETH Holders & Makes Changes to Tiers
BlockFi cites conditions in the crypto lending market and supply and demand for bringing the rates on the highest amount of crypto assets down to levels offered by the banks.
BlockFi has announced changes to its Bitcoin (BTC) and Ether (ETH) interest rates and starting April 1, 2021, the new rates and tiers will go into effect.
The decision has been made in line with the changes, “dramatic swings” in the cryptocurrency industry, and in order to stay competitive. BlockFi said they have to adapt to these changing conditions.
“Rates can change due to market conditions, and while that doesn’t happen often at BlockFi, these shifts can go in either direction,” states the official announcement.
According to BlockFi, the pricing is influenced by several factors such as conditions in the crypto lending market such as supply and demand as the interest paid to its clients is based on the yield generated from lending, which directly correlates to market demand in the space.
“That demand is set by the rate that financial institutions are willing to pay to borrow specific crypto assets, and it can vary between different asset types,” noted the firm. And the price of Bitcoin hitting a peak at about $62k in mid-March coupled with “shifting demand in the lending space,” the new rates have been introduced.
As per the changes, holding up to 1 BTC, you can earn 6% APY, which previously allowed for holding up to 2.5 BTC.
2% APY can be earned on more than 1 and up to 20 BTC, while Tier 3 has been introduced, which offers a mere 0.5% APY on 20 BTC and above.
When it comes to Ether, previously 5.25% APY was available on any number of Ethereum, which now limits up to 100 ETH. Two new tiers have been introduced for Ether holdings, where 2% APY is for 100-1000 ETH and 0.5% for 1,000 ETH and above.
BlockFi’s lowest APY on the highest amount of crypto assets now matches with the highest rate offered by banks.
The Crypto community was quick to point this out, with Jeff Dorman of Arca further saying, “generally bond yields go down when credit conditions improve, and demand is high…. not the other way around like in this case.”
Given that BlockFi also lends out to the “DeFi Ponzi game,” it is a better option to take the risk yourself for a bigger than 6% reward, commented Haralabos Voulgaris, Head of Quantitative Research Dallas Mavericks.
“It was inevitable,” chimed in Robert Leshner, the founder of DeFi lending protocol Compound Finance.
“A huge portion of their business is lending BTC to traders/funds who subscribe to GBTC, with the goal of selling for more BTC at a premium,” he said last month, ever since when this premium has been in the negative. At the time he said,
“Borrowing demand for BTC will evaporate; either lower BTC rates offered or paying interest off their balance sheet to maintain user base.”