Tales from the Crypt #39: Zac Prince

— BlockFi offers USD loans collateralized by Bitcoin or Ether, with initial loan-to-value ratios of 35% and a 72-hour margin call window before partial liquidation.

— Tax optimization strategies exist for crypto borrowers, including the investment interest expense deduction that can reduce after-tax borrowing costs by up to 40% when loan proceeds fund investments.

— BlockFi has secured institutional debt funding (Galaxy deal) and aims to become the first crypto lender to raise capital from traditional banks, demonstrating the integration of crypto lending into legacy finance.

— The lending industry favors state-by-state licensing or bank partnerships for compliance; BlockFi holds more lending licenses across U.S. states than competitors.

— Real estate is the most common use case for BlockFi loans, allowing crypto holders to preserve upside appreciation while accessing liquidity for portfolio diversification.

— Future product expansion includes lines of credit, international lending, and a Bitcoin cash-back credit card to drive mainstream adoption.

— Borrowing against Bitcoin via platforms like BlockFi avoids capital gains taxes and preserves upside, making it ideal for long-term holders with embedded gains who need cash without selling.

— The investment interest expense deduction allows borrowers to deduct loan interest from investment income or capital gains, effectively reducing borrowing costs by your marginal tax rate (e.g., 12% APR becomes ~7% after-tax in high-tax jurisdictions).

— Bitcoin's 24/7 trading and lack of information asymmetry make it a uniquely low-risk collateral compared to equities or commodities, justifying lower lending rates as the market matures and competition increases.