BlockFi is a financial services company built specifically for cryptocurrency holders and investors. The New Jersey-based startup, founded in 2017, offers an array of products tailored to digital asset owners including interest accounts, crypto-backed loans, Bitcoin rewards credit cards along with an exchange to buy, sell and trade cryptocurrencies.
In just five years, BlockFi has grown rapidly to serve over 1 million clients thanks to strong demand for crypto financial services. However, it has also faced scrutiny from regulators over its interest accounts, resulting in hefty fines.
Let‘s take a closer look at BlockFi‘s origins, trajectory, products, controversies along with how it stacks up against rivals in this detailed guide to understand if BlockFi deserves a spot in your crypto portfolio.
The Not-So-Traditional finance background Story
BlockFi was founded in August 2017 by Zac Prince and Flori Marquez in Jersey City, New Jersey.
Zac Prince has been involved with consumer credit companies since 2011. He built experience at multiple fintech startups focused on consumer lending before realizing that cryptocurrency holders were an underserved segment in need customized financial products suited to their unique assets.
In an interview with Forbes, Prince explained his motivation for starting BlockFi:
"I started to recognize that crypto holders had a unique problem in that they held onto this new asset class, but couldn’t leverage these holdings for any traditional financial products such as loans, interest bearing accounts or credit cards. BlockFi was created to help solve these issues for crypto investors and provide credit services to markets with limited access to simple financial products."
Flori Marquez brought operational experience to the table, having served in HR leadership roles at major tech companies like NetSuite, Oracle & Roku prior to teaming up with Prince on BlockFi.
Together, they set out to build financial products designed for individual and institutional investors dealing with cryptocurrency and digital assets – filling a major gap in the emerging crypto economy.
BlockFi‘s Rapid Growth Trajectory
BlockFi attracted investor attention quickly thanks to the massive opportunity in serving crypto investors. Here is an overview of its funding rounds so far:
| Date | Amount | Lead Investors | Valuation |
|---|---|---|---|
| Feb 2018 | $1.5 million | Consensys Ventures, SoFI, Kenetic Capital | – |
| Jul 2018 | $50 million | Galaxy Digital Ventures | – |
| Jun 2019 | $18.3 million | Valar Ventures | – |
| Aug 2020 | $50 million | Morgan Creek, Bain Capital Ventures, Pomp Investments | – |
| Mar 2021 | $350 million | Bain Capital Ventures, partners of DST Global, Pomp Investments, Tiger Global, Valar Ventures | $3 billion |
| Nov 2022 | $100 million | – | – |
After starting with small seed rounds, BlockFi was soon able to tap top VCs like Morgan Creek and Bain Capital as well as leading crypto investors like Mike Novogratz as the popularity of its products continued to rise exponentially.
Within four years of its founding, BlockFi reached a valuation of over $3 billion – demonstrating the robust demand for crypto financial services.
BlockFi Product History Timeline
BlockFi started off with crypto-backed loans and credit cards in 2017 before expanding into other offerings once additional funding started pouring in.
Here is quick history various BlockFi product launches over the years:
August 2017 – Launches crypto-backed loans, allowing users to obtain cash without selling crypto. Also introduces a Bitcoin Rewards credit card.
January 2018 – Introduces trading accounts with 20+ crypto trading pairs and zero transaction fees.
March 2019 – Launches first iOS mobile app to easily access BlockFi accounts and perform transactions on the go.
April 2019 – BlockFi interest Account introduced – offers up to 8.6% annually on crypto assets with no minimums. Rates are significantly higher than traditional bank account rates.
November 2019 – Web-based trading platform launches in addition to mobile apps. This provides an alternative to institutional exchanges for crypto trading.
March 2020 – Partners with Visa to launch the BlockFi Rewards credit card. This new version offers 1.5% back in Bitcoin on all card purchases instead of periodic bonuses.
April 2021 – Launches a new differentiated product – BlockFi Personalized Yield. This provides customized crypto banking and lending services to high networth individuals and institutions. Eligibility starts at $3 Million.
Controversies: Scrutiny Over BlockFi‘s Core Offering
The BlockFi Interest Account (BIA) was arguably one of its most popular offerings, with over 500,000 signups within 2 years of launch by end of 2021.
It allowed account holders to earn up to 9.5% interest simply by depositing supported cryptocurrencies into BlockFi interest accounts. This was significantly higher than savings accounts, making it very appealing.
However, this core product soon attracted scrutiny from the Securities Exchange Commission (SEC), the regulatory body overseeing securities laws in the US.
The increased regulatory attention revolved around two key issues:
- The classification of these interest accounts as securities rather than just accounts
- BlockFi‘s operating model which resembled an Investment Company
In February 2022, the SEC formally charged BlockFi with failing to register these high yield accounts as investment products and companies as mandated by regulations.
After months of negotiations with the SEC, BlockFi agreed to pay a $100 million penalty in February 2022. As part of the settlement, BlockFi agreed to:
- Stop opening new interest accounts to US-based retail investors
- Register existing interest accounts as securities with the SEC
The penalties and classification imposed by the SEC were a big setback for BlockFi. It fundamentally altered their core product suite forcing them to register this offering as a security.
According to experts, the increased scrutiny highlights the regulatory uncertainty surrounding crypto finance companies. Operating lending and borrowing platforms involving crypto may attract further intervention as authorities look to minimize risks and protect investors.
How BlockFi Makes Money
Despite regulatory roadblocks, BlockFi continues to operate a sustainable business powered by multiple revenue streams including:
Interest Fees – BlockFi generates yield by lending out crypto funds on a collateralized basis to institutional partners and through other investments. They pay a portion of this yield to account holders while pocketing a share of the interest.
Transaction Fees – 0.25 – 1% trading fees charged for buying/selling crypto through BlockFi to offset trading costs. Withdrawal fees are also charged per transaction.
Interchange Fees – A portion of all card payment transaction fees are collected by BlockFi on their rewards credit card. This is split with their issuing bank partner.
Margin Funding – BlockFi provides funding to institutional investors who leverage it for margin trades. It earns sizable interest payments on such loans.
Based on these income streams, BlockFi reported crossing $100 million in revenue in 2021 within just 3 years of founding. Profitability has likely been accelerated further in 2022 thanks to wider adoption across existing products.
How Does BlockFi Compare With Competitors?
BlockFi competes with other crypto lending and trading platforms when it comes to products and services. Here is how some key metrics compare across top players:
| Platform | Users | Assets On Platform | Year Founded | Headquarters |
|---|---|---|---|---|
| BlockFi | 1 Million+ | $20 Billion+ | 2017 | USA |
| Celsius | 1.7 Million+ | $20+ Billion | 2017 | USA |
| Crypto.com | 20+ Million | Not Disclosed | 2016 | Hong Kong |
| Nexo | 2 Million+ | $15 Billion+ | 2018 | UK |
| Gemini | 10+ Million | $40+ Billion | 2014 | USA |
BlockFi compares very well to established players like Celsius and Crypto.com when it comes to assets on platform. Gemini edges out BlockFi when accounting for exchange assets.
However, the company has reached a respectable scale in just 5 years, raising over $650 Million from top investors.
The demand for crypto banking services continues to accelerate globally as digital assets become mainstream. In fact, research firm Autonomous predicts that by 2030, platforms like BlockFi could be managing crypto banking services worth $8 Trillion in assets!
This indicates tremendous growth potential for BlockFi and its competitors if they continue enhancing their services while navigating regulations.
Based on its products and growth trajectory over the past five years, BlockFi looks like an appealing platform for cryptocurrency investors and traders to explore.
The ability to earn interest on holdings along with crypto-backed loans and credit cards makes it simpler to maximize utilization of crypto assets without needing liquidation.
However, do account for risks posed by regulatory uncertainties. The SEC probe which resulted in a hefty penalty showcases that regulatory guardrails are still shaping up when it comes to crypto financial services.
Yet firms like BlockFi have the backing of seasoned investors who are betting big on this opportunity of crypto banking services meeting mainstream adoption in the long run.
Ultimately for HODLers and active traders alike, BlockFi merits consideration along with other leading players to determine the right fit based on your priorities and risk appetite in the promising arena of crypto finance.
