BlockFi – Crypto Lender Firm Raising Interest Rates on BTC and ETH
March 18, 2020 3:57 pm
From April 1, BlockFi- Crypto lender firm is raising interest rates on bitcoin (BTC) and ether (ETH).
According to CEO Zac Prince, BlockFi users up to 5 bitcoins now will earn a 6% annual percentage yield (APY) as compared to 3.6% APY currently, while Ether holders for up to 500 ETHs will earn a 4.5% APY as compared to 2%-3.6% APY currently. Interest rates on stablecoins Gemini dollar (GUSD) and USD Coin (USDC), on the other hand, will remain unchanged at 8.6% APY.
Reason Behind changing the interest rates now?
The Change appears to be unusual, given that interest rates are falling in traditional financial markets amid coronavirus risks. By the recent Bitcoin crash caused due to the coronavirus restrictions affecting markets, BlockFi has announced “very limited liquidity”.
The BlockFi said, “they did not liquidate USD loan client collateral below a price of ~$4,500, despite the market reaching lows of ~$3,800.”
Zac Prince, founder and CEO of BlockFi, described The Block that two key factors are enabling the firm to raise interest rates:
“Supply constraint as other market participants have pulled back on their lending activities and ample opportunities for market-making and arbitrage coming out of the extreme volatility that we experienced last week.”
“The next few weeks will be interesting as we will see if assets like gold and bitcoin decouple from the public equities market. In times of extreme panic, every asset is typically sold. After the dust settled in 2008, gold performed very well and we will see if bitcoin experiences a similar cycle.”
He continued by saying that BlockFi’s balance sheet is “stronger than ever and shifts in the institutional lending markets have created opportunities that expand our margin.”
Therefore the judgment to raise interest rates is unexpected when considering how traditional financial institutions are responding to these changes in the market. The U.S. Federal Reserve has also lowered interest rates to 0%.
BlockFi, was Founded in 2018, allocated $30 million in a Series B funding round in February. notable investors included Morgan Creek Digital, Winklevoss Capital and Arrington XRP Capital. This makes BlockFi’s total funds more than $100 million. The platform currently boasts more than $650 million in digital assets.