There’s a New Bitcoin ETF Offering 30% Yield: Here’s How It Works

A little-known Bitcoin ETF hit the U.S. market this month that is promising jaw-dropping annual returns to its investors.

The Roundhill Bitcoin Covered Call Strategy ETF (YBTC), launched on January 18, declared on Friday that its first distribution to investors would take place today in the amount of $1.33 per share. Based on that and the fund’s current net asset value, that equals a 33% annual distribution yield.

The first distribution is coming for $YBTC. The covered call #Bitcoin etf. It was announced last week. Yield is on pace to be over 30% hahaha https://t.co/FrgSokwd3Z

— James Seyffart (@JSeyff) January 29, 2024

That’s a step above what even the riskier, now-defunct crypto firms like Terraform Labs and Celsius once promised their customers on crypto deposits. It’s also far higher than what the U.S. regulators—who were reluctant for years to approve regular Bitcoin spot ETFs—have ever considered a safe yield in the crypto space.

“The Fund seeks to achieve its investment objectives through the use of a synthetic covered call strategy that provides current income on a monthly basis,” reads YBTC’s summary prospectus on its website.

A covered call is when an investor sells call options on a certain security while owning the equivalent amount of that security within their reserves. A call option gives buyers the “option” to buy an asset at a predetermined price on a future date, which some investors prefer to the risk of buying the asset itself.

Roundhill notes that Bitcoin has “historically offered significant options premiums,” creating a lot of high-income potential. Per its prospectus, the fund plans to invest 80% of its net assets into options contracts utilizing shares in Bitcoin futures ETFs as the reference asset.

“The Fund does not invest directly in Bitcoin,” it states, noting that it does not seek to track Bitcoin’s spot price. “Investors seeking direct exposure to the price of Bitcoin should consider an investment other than the Fund.”

The fund’s website also explains that it mostly held its assets in U.S. treasury bills as of Monday, with some exposure to calls and puts for the ProShares Bitcoin Strategy ETF (BITO).

YBTC is an actively managed fund. According to Fred Krueger—who holds a Ph.D. in math and is a former prop trader with a penchant for Bitcoin ETFs—the fund is “the answer” to earning 30% with BTC at “no risk of liquidation.”

“If the market goes down, The puts are exercised, you effectively own Bitcoin (at a loss),” he wrote to Twitter on Monday. “The market goes up, you earn the premium from the puts, and participate with the calls.”

YBTC trades for $49.50 as of Monday, up 5% over the last five trading days.

Edited by Ryan Ozawa.

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