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Crypto Market News

06/16 14:52

BlackRock's new bitcoin ETF lets institutions earn

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This is an excerpt from CoinDesk newsletter 'Daybook.' Sign up here, if you haven't already. BlackRock is expected to debut a new bitcoin $BTC$66,389.05 ETF later Tuesday. The fund offers more than just exposure to the cryptocurrency, it is designed to generate additional income from bitcoin's volatility. The iShares Bitcoin Premium Income ETF (BITA) provides exposure to bitcoin's price by holding shares of BlackRock's existing spot bitcoin ETF, IBIT. It also generates income by selling call options against those holdings. That income is directly tied to bitcoin's volatility. The wilder the price swings, the more expensive options become, and the greater the premium the fund collects from selling them. Even in calm conditions, bitcoin is more volatile than most traditional assets, so it's a fertile asset for this kind of income strategy. Selling a call option, known as writing, is like selling insurance against a price rally. The seller collects a premium, and if the price stays below the specified, or strike, price, it keeps the cash. If the price rises above the strike, the seller compensates the buyer for the upside, potentially incurring large losses. In BITA's case, if bitcoin rallies, the ETF benefits from its IBIT holdings, but the gains are capped by having to pay out on the calls. If $BTC holds steady or falls, the call-writing premium offsets some of the decline. In effect, investors give up potential gains for a steadier stream of income. "By deploying a covered-call strategy on its Bitcoin-linked exposure, the fund seeks to convert Bitcoin’s historically high volatility into a recurring income stream with a target of +15% annual yield while retaining around 70% participation in its underlying capital appreciation potential," Tagus Capital said in an email. The strategy could also affect the broader market, which
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