Good article, but I do not agree with a few points you made.
I don't think they would reduce rates if they were underwater and needed capital. That's illogical. Why would they want their biggest clients to leave if they needed the money? I think with this move they are reducing risk. 1000 clients with 1 BTC is much better than 10 clients with 100 BTC. Reduces systemic risk. Plus they are rolling out the card and other products so they are positioning themselves for masses, not for whales.
Having said that I didn't like their withdrawal process. Yesterday was the first time I tried to withdraw from their interest account and they flagged my withdrawal and I needed to verify my identity today. That is kinda silly in crypto world, when I already did that when I registered and I have 2 factor authentication and all the other bells and whistles. So this was a 1st red flag in my experience with them. Tho I do like that withdrawal is free.
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They would reduce rates because they have too many assets under management and not enough demand to lend it out. Before that wasn't a problem when there was a Grayscale premium as they could do the arbitrage there. But now that the premium has disappeared they are forced to rely on lending out that BTC. But if they have too much BTC and not enough demand, then that BTC is just sitting on BlockFi; but they still have to pay interest.
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I agree with everything you wrote in this comment. But I wouldn't call that being "underwater". It is just good business and risk management.
If you have the opportunity to take advantage of huge Grayscale premiums, why wouldn't you. And if that opportunity disappeared because of Canadian ETFs and other investment vehicles, why would you pay excessive interest on the capital you don't need ATM?
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