BlockFi brings back crypto interest accounts to US accredited investors
BlockFi is rolling out its first crypto interest product since it paid a $100 million settlement with the Securities and Exchange Commission in February and agreed to stop offering it to the US public.
Called BlockFi Yield, this crypto interest-bearing option is available to accredited investors in the US through Reg D [506(c)] exemption from the Securities Act of 1933.
The new product comes during a year in which crypto lending firms have faced significant financial concern and scrutiny, particularly after two of BlockFi’s biggest competitors – Voyager Digital and Celsius Network – froze customer accounts this summer and eventually declared bankruptcy and the company itself entered into an emergency agreement. with crypto exchange FTX US.
“While this summer’s events were a true test of our risk protocols, we are confident in our proactive risk management framework,” BlockFi co-founder and COO Flori Marquez told Yahoo Finance, adding that the company was happy to bring back crypto. interest-bearing accounts of some US investors.
Before the settlement, BlockFi’s interest-bearing crypto accounts were akin to what consumer-focused banks offered, but for much higher interest and risk in a much less regulated asset class. The accounts allowed US investors in certain states to lend crypto in exchange for a higher variable monthly interest payment. On the other hand, the company generated that interest by offering crypto assets as unsecured loans to institutional and corporate crypto borrowers.
As of March 2021, BlockFi had as much as $14 billion in customer assets according to data from Crunchbase, largely thanks to lending and borrowing.
It is not clear how different the new Yield product will be compared to the company’s original fixed income account offering. The conditions for BlockFi Yield and BlockFi Interest Account are almost identical.
Other than better risk protocols and investor disclosure, the terms of BlockFi Yield and its Interest Account are virtually identical.
The product comes after a difficult year for the crypto space and the company.
After paying what was at the time a crypto firm’s largest settlement with US regulators, the firm has been hammered by falling cryptocurrency prices and the bankruptcy of Three Arrows Capital, one of the industry’s biggest institutional borrowers. When it became clear that Three Arrows would not be able to meet their margin requirements in time, BlockFi was forced to take a loss of 80 million dollars.
While acknowledging both the need for scrutiny in crypto-lending businesses and for businesses like BlockFi to accurately represent the risk to customers, Marquez said the persistence of other firms has worked in the firm’s favor.
“If you think about what’s happened with a lot of the companies similar to BlockFi, the offering is definitely smaller now given that we’re one of the only companies operating in the US, and so it’s changed from being a borrower’s market to a lenders’ market,” she told Yahoo Finance.
Recently, BlockFi has resurfaced as a creditor of financially troubled bitcoin mining company Core Scientific, which warned in late October that it may not be able to pay its debts. In Core’s worst-case scenario, BlockFi would be on the hook for an outstanding $60 million loan.
But Marquez reiterated that the company is prepared, thanks in part to having increased capital reserves for possible loan defaults.
“We run a diversified lending business. So loans from Bitcoin miners are a small part of our overall lending portfolio. All outstanding loans have collateral. We have not written a new BTC mining loan since spring 2022,” she added.
While Marquez could not speak to the approval process the company must complete before offering non-accredited US investors access to crypto interest accounts again, she reiterated that the process is a top priority. It necessitates filing a Form S-1 with the SEC, which is essentially an initial public offering document.
“We are definitely continuously working with our regulatory counterparts to provide BlockFi returns to all consumers in the US, because we believe that US consumers have a right to earn interest,” she added.
Until then, the company aims to expand outside the US, having announced a payments integration partnership with fintech company Stripe that will make it easier for non-US customers to fund accounts.
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David Hollerith is a senior reporter at Yahoo Finance covering cryptocurrency and stock markets. Follow him on Twitter at @DsHollers
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