The interest rates on a regular savings account are in free fall, but those who buy Bitcoin or other cryptocurrencies have an alternative. By depositing bitcoin or another cryptocurrency with in a crypto savings account like BlockFi, you can earn up to 8.6 percent (6 percent for BTC) in annual interest, paid out every month. The compunded interest can have a big effect on the return from investing in Bitcoin.
To illustrate the effect compounded interest has on the return on savings, check out the illustration below that shows the interest earned have the figure below.
With traditional banking a interest rate of approx. 0.5 percent is normal. With a 0.5 percent interest rate, you will only achieve a 5 percent return over a ten-year period. With an annual interest rate of 6 percent, you will get almost 80 percent return.
If you save on BlockFi and choose to have the interest paid in Bitcoin, you will be able to get a double effect. You get both a high return that results from the high interest rate and you get an increase in value from the bitcoins you get in interest income. If you buy bitcoin for 10,000 USD and it rises to e.g. 500,000 USD over the next 10 years, you will be left with as much as 900,000 USD, ie 400,000 more than without interest.
If, on the other hand, the exchange rate were to remain unchanged, you would have zero return without interest and 8,000 USD with 6 percent annual interest.
Of course, there is also a risk that the value of bitcoins will fall, but you will still be more earned with interest income than without.
If you choose to buy bitcoin, you must be aware that there is uncertainty associated with the price development. Volatility is necessary and although the increase in value so far has been formidable, there is no guarantee that it will not turn around in the future.
If you set up a customer relationship with BlockFi and make a deposit, it is also important to be aware that you are running a counterparty risk. If BlockFi e.g. should go bankrupt, there is no guarantee fund that guarantees customers’ money. One should therefore read carefully on how BlockFi handles risk and make its own assessment of the service. You can find an overview of their terms for her interest account.
The moment cryptocurrency is sent to BlockFi, you no longer have control over the funds. The user is responsible for making their own assessment of BlockFi and the risk associated with transferring funds to them.
BlockFi is a US-based company that offers interest on deposits in cryptocurrencies and loans with cryptocurrency as collateral. Since its inception in 2017, the company has built itself up to become one of the largest and most recognized companies in the crypto market when it comes to earning interest and taking crypto loans. Large and reputable companies such as Morgan Creek Capital Management, Coinbase Ventures, Winklevoss Capital with several investors in the company.