BlockFi Faces SEC Scrutiny Over High-Yield Crypto Accounts

An anonymous reader quotes a report from Bloomberg: BlockFi is being scrutinized by the U.S. Securities and Exchange Commission over its popular product that pays customers high interest rates for lending out their digital tokens, a development that significantly ratchets up the fast-growing crypto firm's legal woes. The SEC review focuses on whether the BlockFi accounts are akin to securities that should be registered with the regulator, according to a person with knowledge of the matter. The Jersey City, New Jersey-based firm touts annual yields as high as 9.5% on its website -- a figure that dwarfs the 0.06% average interest rate for bank savings accounts.

States including New Jersey and Texas have already taken action against BlockFi, questioning whether it's marketing illicit financial products that lack bedrock consumer protections. BlockFi and other firms are able to pay high interest rates because they can charge institutional investors that want access to coins even more. The market is one of the hottest corners of crypto, with companies saying they've collected more than $40 billion in deposits. [...] A key concern is that unlike bank deposits, the crypto accounts aren't insured by the federal government. If a firm goes bust, customers could lose their funds.

Let 'em

[OverlordQ]

They wanted unregulated banking, let everybody lose their money.

Re: Let 'em

[saloomy]

Why should it matter that it is not FDIC protected? At that yield, you could go get insurance against BlockFi collapsing and still make a profit. There are various financial instruments at each risk level for investors with all kinds of risk tolerances. None of which should be insured by tax payers. Fuck bailouts.

Re: Let 'em

[bws111]

The FDIC is not funded by taxpayers, and who do you think is going to sell you insurance against BlockFi collapsing?

Re:

[h33t l4x0r]

Funded by banks technically, but guess what happens when banks fail? Honestly from what I've seen keeping your crypto locked in a big CeFi is way safer than having it loose in a wallet.

Re: Let 'em

[saloomy]

Really? After 2008 you have the gall to state that? The FDIC premiums are a pittance compared to a bailout of the financial system. The whole point of the FDIC is the almighty tax payer steps in. That is why there is no private alternatives. The potential insurance payouts do not make sense for the premiums charged. The federal government becomes the last man standing.

Re:

[sabbede]

Whichever insurance company first realizes there is a market for the product?

Re:

[JorkutSind]

Absolutely. And that's a start, but I'd like to see more options.

Unregulated cryptosecurities, I'm not going to touch those.

We can have some SEC regulated cryptocurrencies, sure. But the SEC doesn't seem to do it's job all that well, while still being quite the red tape. The mortgage crisis kinda proved that it doesn't protect investors that well. And the fact that everyone is lawyering up to NOT be regulated by them suggests that they're quite the hassle to accommodate.

I'd like to see some kind of free mar

Re: Let 'em

[MrBoring]

I had problems with Coinbase. They were double charging me and not reporting it. So I called the NC regulator where I live. They didn't even pick up the phone. In another case, I had catastrophic disability insurance on my wife in case of cancer. Then two months later, she was diagnosed. Insurance commission didn't force them to pay. Lesson learned? Regulators are worthless pieces of shit that add to the cost of doing business and are not there to do there jobs.

Re:

[allcoolnameswheretak]

The SEC better do it's job to "protect" clueless retail investors from that 9.5% yield so they move their cash back into bank accounts for that juicy 0.06%, hmm, or rather negative 6.06% once inflation is factored in.

Makes you think the SEC's real job is protecting the banks, not the little guy.

9.5%? Big deal.

[h33t l4x0r]

index funds do better than that. Hex is promising 40%.

Re:

[Anonymous Coward]

I make a lot more than $7k/month on crypto, and I know you are feeling jealous, but it is never too late to get started. Bitcoin is actually about 10% off the peak so this would be a good time.

Re:

[EmoryM]

...so you're saying I should buy now and sell at 90k? Thanks Crypstrodamus!

Moronic Editor

[hoofie]

Can we beat the living shit out of the fucking idiot Slashdot Editor who posted an article with a link to a Bloomberg article behind a paywall ?

Seriously do you have a fucking brain ?

Re:

[DrMrLordX]

tsk. They only accept XMR.

Let them get an online gambling license

[sir_smashalot_3rd]

since that would match the actual business.

How is lending supposed to work with these?

[sabbede]

With a bank, when you deposit $100, they lend out $90 but on the books you have $100 in the account. Crypto can't work that way, either something is in your wallet or it isn't. The interest you get on a savings account reflects the interest the bank charges on loaning out your deposit. The process increases the supply of money. Crypto doesn't work that way, its supply can only increase through mining. The company's site says interest is paid to depositors in crypto, so where is it coming from? It can'

Re:

[Ed Tice]

I have no idea how BlockFi works. But from TFS, they accept crypto deposits. They then lend out those deposits which get repaid with interest. As you point out, the repayment is likely the original crypto plus interest in dollars or maybe entirely in dollars. Either way, those dollars can then be used to by crypto currency. This is standard-issue deposit taking banking except the rate are higher due to the higher risk. Most notably, if somebody borrows crypto and can't repay, depositors are likely to l

Re:

[sabbede]

Well, the standard practice for interest-bearing deposits doesn't include currency conversion. Dollars are deposited, lent, and paid back. As a result, there are more dollars in circulation. Lending crypto and taking repayment in dollars decreases the supply of dollars and increases the price of the crypto, which cannot be created through lending. Now, I'm not sure if fixed-exchange crypto makes it worse or not, but over time the impact on the supply of money will be devastating.

In a way it's more lik

Re:

[Ed Tice]

I presume that, if they are lending crypto and taking dollars, those dollars will be deposited at a bank somewhere and still be available. At some point we may be debating points finer than we can discern from what is publicly known. That being said I am in whole-hearted agreement with you that crypto is the ultimate in wasteful.