BTCI: An Options-Based Strategy For Generating Cash Flow On Bitcoin

Summary BTCI generates cash flow through a synthetic options strategy, with an expense ratio of 0.98%. Negative aspects: It has low AUM, is illiquid, and has a high bid-ask spread. Still better than its competitor YBIT, which in my opinion is a high-dividend trap (above 90%). In my opinion, it’s important to monitor how the fund is managed and maintain an active allocation to limit the risk of capital losses. It’s still a very young ETF for an objective evaluation, but for now, I don’t see any major concerns, except for its liquidity. It’s a time of pullbacks across markets, and even the crypto market, led by Bitcoin, is feeling the effects of the red season. And it’s precisely during steep downturns like this that covered call ETFs come back to mind. In my view, these are instruments that should be avoided during a bull market, especially under a buy & hold strategy , but they might become worth considering after strong sell-offs, though only for investors looking for cash flows. [[BTCI]] falls into this category, and for that reason, I believe it deserves a closer look, even if, in my opinion, it’s still a bit too premature to be seriously considered as a long-term portfolio holding. What is BTCI? NEOS is well-known for this type of ETF , and BTCI, while not the only “exotic” product in its catalog, is definitely the one that’s caught my eye the most. As always, here’s a quick list of what I believe are the key facts to know when considering BTCI: Covered call strategy using European-style options on CBTX, meaning they can only be exercised at expiration. This offers potential tax benefits (Section 1256), with a return of capital (ROC) ranging from 95–100%. It’s expensive, with a 0.98% expense ratio. Pays monthly distributions, with a TTM dividend yield of 17% according to Seeking Alpha, and a 30-day distribution rate of 3.11% (as per NEOS). It’s illiquid, with AUM around $127M and a very low average trading volume (~200 shares) and a bid-ask spread of 0.38%. And while NEOS isn’t the largest issuer in the buy-write ETF space, it essentially has a small monopoly here with BTCI. Its direct competitor YBIT seems (to me) far less efficient: it doesn’t solve the liquidity problem, and its distribution structure feels overly misleading. [[YBIT]] flaunts a 99% dividend yield, which might sound “unmissable”, but due to heavy capital losses, the total return is underwhelming, making it hard to justify its expense ratio (4x BTCI). Profile (BTCI – YBIT) (Seeking Alpha) BTCI, the comparison of strategy BTCI holds up to 25% in HODL ETF shares through offshore subsidiaries , while the remaining 75% is allocated to T-bills, which act as collateral for a synthetic covered call strategy. The strategy is flexible, as clearly stated in the prospectus, and given the high turnover along with an average distribution rate of 25–30%, it seems management is targeting a 2–3% monthly payout. On the other hand, YBIT is almost entirely synthetic, with 100% exposure to T-bills used as collateral for managing synthetic options exposure (0–50%). This allows it to generate higher monthly income, but mathematically translates into lower capital returns. Not only that, the synthetic construction causes wider NAV dislocations, which has already happened: up to 8% deviation in certain scenarios. BTCI, instead, has shown tighter NAV tracking, with deviations usually between 1–2%. Does it make sense to hold it? My opinion One of the most common criticisms of Bitcoin is that it doesn’t generate cash flows. While I don’t believe this is a real flaw of Bitcoin, it’s interesting how BTCI directly addresses this issue. By holding HODL ETF (forgive the pun) and applying a managed options strategy, BTCI becomes a product that fills this gap. So in theory, it can play a role in a portfolio for those seeking cash flows, although only with a small allocation, and definitely NOT as a substitute for Bitcoin. That’s because we must not forget these are two different instruments, and they behave differently: for example, during the bull market, BTCI underperformed BTC (naturally, due to the nature of the options strategy), but interestingly, during recent market declines, BTCI has outperformed BTC in terms of total return, despite both posting losses. BTCI – BTC (Seeking Alpha) Risk Overall, if we expect steady growth in BTC over the years, the capital gains of BTCI will be lower than the underlying asset, because the objective is cash flow, not total return. This is not a problem, in fact, it’s the very reason why BTCI exists. What matters is that the fund maintains a solid relationship with NAV and does not generate progressive capital losses. I say this from experience: in some cases, if the fund is poorly managed, it could end up destroying value, especially if it pushes too hard in its search for yield. This tends to happen when, in an attempt to attract more (less informed) investors, management (which becomes more of a marketing arm) increases the synthetic exposure. In short: it boosts the “dividend” yield, but this can compromise the ETF’s link to the underlying. That’s why covered call ETFs, especially actively managed and illiquid ones like BTCI, in my opinion, must be monitored as closely as they are managed. To reduce risk, I personally think it’s better to decrease allocations as the bull market progresses, to avoid being trapped in a bear market (when fund outflows could push management to increase the yield even more). Conversely, I believe bear markets should be taken as opportunities, a chance to lower the average cost basis and reduce the risk of getting trapped in the fund should it lose its NAV tracking (assuming, of course, you believe the underlying asset will continue to grow). BTCI (Seeking Alpha) Conclusion It’s difficult to assign an objective rating to a fund with such a short track record, especially in this category, where time-tested performance is essential for proper evaluation. However, based on its current structure, I don’t see major concerns beyond this. For investors seeking cash flow, it could gradually prove to be a viable option. That said, like most covered call ETFs, I don’t believe a buy & hold strategy is the right approach here. All things considered, at this stage, a fair rating for this ETF would be: HOLD.

Source: Seeking Alpha