One of the common criticisms skeptics have about Bitcoin (CRYPTO: BTC) is that it doesn’t produce any cash flow. Well, jokes on them—because thanks to covered call Bitcoin ETFs, you can now earn a double-digit yield.
A prime candidate for this strategy is Purpose Bitcoin Yield ETF (TSX: BTCY.B). As of January 16, 2025, it offers a 10.64% distribution yield with monthly payouts.
Here’s what you need to know about this high-yield, Bitcoin-focused ETF.
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How BTCY.B works
BTCY.B is essentially an advanced spot Bitcoin ETF. It achieves this by holding another Purpose ETF that directly holds Bitcoin.
What sets BTCY.B apart is its covered call strategy. Here’s how it works: BTCY.B writes (sells) covered call options on its underlying Bitcoin ETF holdings. These options give buyers the right—but not the obligation—to purchase Bitcoin at a specific price within a certain timeframe.
By doing this, BTCY.B gives up some of the potential upside of Bitcoin price appreciation in exchange for immediate income from the option premiums.
A unique feature of this approach is that option premiums are influenced by volatility. The higher Bitcoin’s price volatility, the greater the income BTCY.B can generate from selling these options.
This mechanism is the key to how BTCY.B achieves its double-digit yield, providing a steady income stream for investors while maintaining some exposure to Bitcoin’s price movements.
Expect this ETF to outperform during sideways or rangebound markets (often referred to as “crabbing”), as it earns income from selling call options.
In bull markets, BTCY.B will likely underperform as it sacrifices some of the upside. During bear markets, it tends to fall slightly less than Bitcoin, as the premium income earned acts as a cushion.
Risks to be aware of
First, BTCY.B is not currency hedged. This means that if the U.S. dollar strengthens against the Canadian dollar, BTCY.B benefits. But if the Canadian dollar rises, it can hurt BTCY.B’s performance. If you want to avoid currency risk, there’s a hedged version of the fund available.
Second, like all Bitcoin-related investments, BTCY.B is very volatile. It’s still fundamentally tied to Bitcoin’s price, so a high risk tolerance is essential if you’re considering this ETF.
Lastly, remember that covered call strategies are not a free lunch. While BTCY.B delivers a double-digit yield, its price return will likely lag behind directly holding Bitcoin, as the ETF sacrifices some of the upside for immediate income.
If you’re comfortable with these trade-offs, BTCY.B could be a good fit. Personally, I view it as a way to take consistent monthly profits from Bitcoin’s price movements—never a bad idea, especially when the crypto market feels overheated.
