A common criticism of Bitcoin is that it does not generate cash flows. I think that argument is short-sighted. The real question is what those cash flows are worth when bonds or dividend stocks pay you in fiat currency that governments can debase at will.
If the lack of income has been the main reason you have avoided Bitcoin, there is now a workaround. Some exchange-traded funds (ETFs) use option strategies to turn volatility into cash flow. One Canadian example currently paying a very high yield with monthly distributions is Purpose Bitcoin Yield ETF (TSX: BTCY.B).
This is not a low-risk investment. If you are uncomfortable with Bitcoin’s volatility, it will not be suitable. Still, it is worth understanding because it highlights how much the Canadian ETF landscape has evolved.
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What is BTCY.B?
BTCY.B is a covered call ETF. The structure is straightforward. The fund holds exposure to Bitcoin through another Purpose Bitcoin ETF and then sells call options against that position.
In a covered call strategy, the ETF owns the underlying asset and sells call options at a chosen strike price and expiry. In exchange for selling those options, the fund collects option premiums. Those premiums are then paid out to investors as income.
There is a clear trade-off. By selling calls, the ETF gives up some upside if Bitcoin rallies sharply above the strike price. The closer the strike price is to the current market price, and the shorter the option expiry, the more income the ETF can generate, but the more upside it caps. This is why covered call ETFs tend to perform best in flat or choppy markets rather than during strong bull runs.
Volatility is the key input here. Bitcoin is one of the most volatile mainstream assets in the market. Higher volatility means higher option premiums, which directly translates into higher potential yield.
How the yield works
As of January 9, BTCY.B is yielding about 14.54% on an annualized basis. This figure is calculated by taking the most recent monthly distribution, annualizing it, and dividing it by the current net asset value of the ETF.
Distributions are paid monthly, which makes this structure attractive for investors focused on regular cash flow. That said, the yield is not guaranteed. It will fluctuate based on Bitcoin’s volatility, option pricing, and market conditions.
One important drawback is cost. BTCY.B has an expense ratio of 1.81%, which is high by ETF standards and will reduce long-term returns. A more hands-on investor could buy a U.S.-listed spot Bitcoin ETF and sell covered calls directly to save on fees.
However, for investors who want exposure in Canadian dollars and prefer a fully hands-off approach, BTCY.B packages that strategy into a single trade. Just be mindful of the high fees and greater risk.
