'Bitcoin is the best-performing asset class this year': BlockFi Founder

BlockFi CEO & Founder Zac Prince joins Yahoo Finance's Zack Guzman to discuss interest earnings in the crypto currency sector.

Video Transcript

ZACK GUZMAN: But right now I want to introduce you to an interesting opportunity in the crypto space. It's offering a little bit of something that looks a little bit more attractive for some investors out there seeking higher interest rates. What if I told you, you could be earning 4.9% instead of the close to near-zero rates you could be getting in a traditional bank account?

That is what's being offered by one crypto startup, BlockFi, that's raised quite a bit of money here from some interesting backers, both Morgan Creek as well as Coinbase. Had them on the show before, and now the CEO of BlockFi and founder, Zac Prince, joins us once again. And Zac, when we talk about 4.9% that's a very attractive interest rate, and I'm sure a lot of ears perked up out there. But talk to you about how it works and who you're trying to attract with that offer out there.

ZAC PRINCE: Yeah, so first off, thanks so much for having me back on the show, Zack. I'm really happy to be here. And unfortunately, things are a bit weird because of COVID. And it's a very unfortunate situation. But for the cryptocurrency sector and for BlockFi, there's been a silver lining, which is that obviously everything digital is doing very well. The cryptocurrency sector is also truly global. And we've experienced a lot of growth at our company since we last chatted.

And Bitcoin, if you look at it as an asset class, is the best-performing asset class, this year better than gold, better than the S&P. So there's been a lot of tailwinds recently that have come to the cryptocurrency sector and to BlockFi.

You touched on the interest rates. So right now, on our platform as a consumer, you can download our mobile app or go to our website, and earn 8.6% on cash, which is held on our platform in the form of stable coins that you can send in from your bank account. You can earn 6% on Bitcoin, and you can earn 4.5% on Ether.

Why does that exist? It's really simple from a user's perspective. You mentioned your roommate might be a fan of it. It's really easy to use, but there's a lot that goes on behind the scenes to enable us to do that. We're the largest lender of cryptocurrencies to institutional borrowers, who today are primarily market makers and proprietary trading firms, that are active in this asset class and have been for a while, but they can't finance that activity with their traditional prime broker relationships, because banks aren't active in the space yet.

And that's the reason why the yields are still high, because this is a new asset class. It's nascent. It's growing quickly. And it doesn't have access to the traditional sources of debt capital. And as a result, when we're lending, we're able to charge higher rates, and then we pay that back to the folks who are our clients on the front end, whose experience is super simple. They hold the balance, they accrue interest, it gets paid out once a month.

ZACK GUZMAN: Yeah. I mean, he's a crypto guy, so he's interested in a lot of different things out there. But I imagine that your customer, who you're trying to attract here, might not be those people who traditionally have been comfortable with cryptocurrencies. And talk to me about that, because it's not just the high-yield interest account that you guys are offering, but also a rewards credit card that also gives you rewards to use these things and attract them that way. So who are you going after? As you mentioned, banks might not be meeting them where they want to be met.

ZAC PRINCE: So as we continue to grow as a company, we're definitely evolving in terms of who our audience is and who our products are relevant for. So the last time we were on the show, last December, we were paying around $1 million in interest every month to our clients. And those clients were primarily folks like your roommate who were already pretty heavily involved in the cryptocurrency sector and learned about our platform pretty early.

Today, we're increasingly moving mainstream. Last week, we did an event with Benzinga, educating folks on the benefits to your portfolio of diversifying and having some exposure to cryptocurrency. Everyone understands the benefits of our primary interest account products, where you're earning compound interest, your money is working for you. And we're going to continue to go down that path.

We're really excited about the bitcoin rewards credit card. We think that everyone who already likes bitcoin is going to use it. It's a total no-brainer. But also, for someone maybe like yourself who's curious or interested, you might want to hold some bitcoin, but it's risky and scary, and you don't know how to do it, everyone knows how reward points work. You spend money on your credit card, you pay off your card, you get paid for doing that.

Right now, you primarily get paid in either cash back, airline miles, or hotel points. And if it's airline miles or hotel points, we think it's a pretty attractive time to consider switching that to bitcoin as your rewards currency because we're all traveling less [INAUDIBLE] what's going on. And bitcoin has done really well. The performance trends that have helped this sector historically are in motion and stronger than ever.

ZACK GUZMAN: The last question, too, though would be tied back to, I guess, what might have some people hesitant to jump in, which would be the tax question around all this, too. And that's something you address with new users around those concerns. Talk to me about how that plays into, I guess, the complexity of trying to do all these different things at once.

ZAC PRINCE: So there's no skating taxes on our platform. We're heavily regulated both at the federal and state level as a financial services company in the US.

We're going to be the first cryptocurrency platform to launch a feature, which is coming out in November, where we have automated tax loss harvesting. So all of the basic stuff that you get in a brokerage account or a savings account with a bank, in terms of tax forms that are produced for you every year that you can give to your accountant or use yourself when you're plugging them into tax software-- that's already available. That's a baseline.

We're adding on to that a feature that exists on robo-advisory platforms in traditional markets, where if it makes sense to capture a loss on a position, you can opt into this tax loss harvesting. And our platform will automatically do that for you to save you money and boost your returns on an after-tax basis.g