Thread by @alphaazeta

0/ I’ll try to make a case on why using @therealblockfi interest account is one of the worst decisions a BTC investor can make. I’m all for innovation and new products in the BTC space. But, in my view, this is highway robbery + exposes investors to a risk they don’t understand👇🏻

1/ Let’s start with the 6% yield. This is pre-tax. There’s enough here to be concerned that this could be taxed as ordinary income (0% to 37%). @ 37% - the aft tax yield = 3.78% NOT 6%.

2/ even pre-tax, let’s use 1 month treasuries as a comparison paying ~2.4%. On @therealblockfi you receive a premium of 3.6% above treasuries (“risk free”). Is 360bps enough to compensate for BlockFi’s credit risk you will be taking?

3/ Typical startup loans (similar credit risk you take when depositing at @therealblockfi) are much higher than 6% depending on collateral. Closer to 15% to 20%.
Remember, BlockFi goes under = you lose all your BTC potentially.

4/ The risk of @therealblockfi defaulting probably increases as BTC goes up. Why?
They claim to be lending BTC to institutions. Most probably so they can short BTC. BTC moves up quickly = these institutions default. If there isn’t enough collateral, blockFi incurs a loss.

5/ You are indirectly exposed to Gap risk - I.e. BTC moves up quickly = higher risk to Blockfi = higher risk to your deposit.
Imagine a scenario where you are bullish, BTC goes up quickly and you lose all you BTC.

6/ to summarize, the risks are:
- exchange risk (ex: lost keys)
- default risk (Blockfi goes under)
- gap risk (BTC gaps up)

7/ if you feel 6% is nearly enough to take these risks you are out of your mind. I would require 40%+ to take these risks.
History has shown that interest bearing exchanges don’t have a great track record in BTC.

8/ Please keep your BTC at safer alternatives like a hardware wallet.

Bonus/ A few people pointed that @therealblockfi requires 50% collateral on their loans. Is that enough?
Well, look no further than 2017 where in 3 days BTC jumped up 45%. Pretty much all that collateral would be gone.

Bonus 2 / I wrote a Python web app that shows the largest moves in BTC. If you are curious, you can see that the top 10 weeks in BTC returns would be disastrous for managing this collateral.
hodlcalculator.herokuapp.com