The Federal Deposit Insurance Corp (FDIC) is a federal entity that covers banking and other financial institutions by:
The FDIC insures trillions of dollars of deposits held within US banking institutions.
This organization was established to protect money people have deposited into the banks in the unlikely event the financial institution goes out of business or shuts down for any other reason.
According to the BlockFi website, here's what they have to say about FDIC insurance for investors:
Digital currency is not legal tender, is not backed by the government, and crypto accounts held with BlockFi are not subject to FDIC or SIPC protections.
BlockFi is not FDIC insured.
SIPC insurance covers United States investors in the event that their brokerage firm fails.
This covers you against the loss of securities such as stocks and bonds as well as cash held within the account for the purpose of investing. It is important to understand, however, that the SIPC does not insure you against any losses experienced from investing in stocks/bonds. It covers you in the event that these assets disappear.
Since digital assets are not federally regulated and are not considered securities or cash, they are not covered by SIPC insurance.
Before getting into the discussion of insurance, it is important to understand what actually happens with your crypto that you deposit with BlockFi.
Here's what their website has to say about this:
When clients send crypto to their BlockFi account or purchase additional crypto within the BlockFi Interest Account (“BIA”), that digital asset is replaced with an obligation to return the same amount of that crypto plus any interest earned.
In essence, you are loaning out your cryptocurrencies to BlockFi in order to earn interest in return. You are able to request a withdrawal at any time, however BlockFi only allows 1 free withdrawal per month. After that, you will have to pay fees to withdraw crypto assets.
Unfortunately, BlockFi does not offer any type of separate insurance against theft/loss of crypto assets. This is outlined here:
Digital currency is not legal tender, is not backed by any government, and the BlockFi Interest Account is not a bank account nor a brokerage account, and is not subject to FDIC, SIPC, or other similar protections. Interest rates, withdrawal limits, and fees are subject to change and are largely dictated by market conditions. This is not a risk-free product and loss of principal is possible.
So, in a nutshell, there is no insurance protecting your crypto deposits on BlockFi. Those who use the platform need to be familiar with this and comfortable with the risks in return for earning interest on their crypto deposits.
