25% Yield (and climbing): Bitcoin Income ETF’s are Nuts!

0:00 one of my smallest Investments has produced the highest yield and the most appreciation it's the Maxi Bitcoin ETF that I reviewed back in February of 2024 and that got me thinking which other Bitcoin ETFs are paying monthly income and how do they compare if you're not really into crypto but you're curious about getting some Bitcoin exposure that pays you monthly in dollars today's episode will get you up to [Applause] [Music] speed hi from Bangkok and special thanks to the staff at mu hotel for letting me film here an hour ago this was a breakfast buffet amazing apart from the Maxi ETF I mentioned earlier I found five other Bitcoin ETFs for a total of six we'll look at how much income they

0:45 generated compare their total returns then we'll look at how they make money let's start with the income these ETFs have been paying out a ton of cash lately the BTO distributions B literally looked like a roller coaster track normally I'd show you the annual yield for a stock or a fund but today I'm not going to do that because several of these funds are less than a year old and the last few months have been abnormally bullish so annualizing those bullish months would heavily favor the new funds instead I'll display the annualized yield for the lowest distribution month and the highest distribution month Beto paid out half of 1 C per share in September 2023 so we'll round that down to zero the highest month so far was June 2024 at

1:31 a176 or actually 1.76 eight which would equate to an annualized yield of 86% on today's price of $24.6 I had to check that calculation twice cuz it looked so crazy high by the way if you're new to the channel I retired in 2017 and that's when I got serious about researching my investments in Greater depth and this channel is where I share what I learn I mostly focus on stocks and funds paying consistent yields of 8 to 12% today's ETFs have recently been paying a lot more than that if you'd like a copy of my portfolio it's available via armchair inssider Link in the description it's free Maxi distributions do look a little odd in 2023 they had a policy of Distributing 15 cents a month and all excess distributions in December which

2:19 turned out to be quite a lot more than $4 in 2024 they started Distributing the EXs distributions earlier to spread them out a bit more $1 a month and then $2 in November those annualized yields for the lowest and highest months are based on today's price of $30.7 btci is brand new so it's too early to see a pattern really however the fund manager Garrett said they're targeting annualized distributions of 25 to 30% and so far that looks about right based on my experience with other NEOS funds I expect that btci will have the most consistent payouts of any of the funds we look at today why BTC payouts are all over the place but even the lowest payout equates to an annual yield

3:04 of 20% by the way these distribution charts aren't available on my Schwab brokerage account or Yahoo finance I use either sney alpha or snowball depending on which program I'm using at the time I also use snowboard to keep track of my income I can rank my portfolio by current yield to see if there's something I want to sell check the yield on cost and most importantly see a calendar that tells me how many dollars will arrive on any given day of the month Link in the description for a discount and a free trial ybit distributions are also quite volatile the lowest month equates to 58% which seems extremely high but this one is from yield Max and their funds tend to pay higher yields but underperform in price the lowest distribution for msty

3:50 equates to an annualized distribution of 66% that's probably the craziest number for today I'll explain more about this fund shortly total returns combined distributions and price change usually this is a great way to compare Investments with different yields most of these funds are so new there isn't really a clear winner but we can gain some insights using Total return over the past month we can see that the highest Total return was BTO at 36% and the lowest was y bit at 20% Bitcoin has been on a tear since the election so that was an abnormally good month then when we switched to the past 6 months there was a breakout winner MST at 89% and the lagged was W bit at just under

4:38 4% then when we zoom out to the past 12 months MST was also a clear winner at a 271 Total return despite being less than one year old the rest is a bit chaotic because four of the six funds are less than a year old which frankly limits the value of this particular chart last of all let's look at the two funds that are more than a year old Beto and Maxi if we go back to the Inception of the younger of the two Maxi in September 2022 their total returns are almost identical at just over 330% these Total return charts came from Seeking Alpha it's also my primary source for all things income investing related if you'd like to learn how I use Total return charts distribution charts and other

5:25 tools check out this video link in the description for the video and a link for a discount on Seeking Alpha membership I use the premium level Bitcoin doesn't generate income all by itself but there are ways to turn its price action and its volatility into distributions let's look at how each fund does that BTO doesn't hold any Bitcoin instead it replicates the price action of Bitcoin by entering Futures contracts those contracts aren't purchased for a fee instead they're guaranteed by collateral it's a bit like doing a home equity line of credit to buy a second house use your first house is collateral instead of saving up all the cash in this case the collateral is US treasuries whereas options give the holder the right but not the obligation to buy or sell an

6:11 asset Futures are different they are a very specific obligation to buy or sell an asset at a specific price at a specific time the value of the Futures contracts moves up and down with the price of Bitcoin so they're a fairly good proxy for the price of Bitcoin coin Maxi uses three strategies to generate income the first one is simple it holds fixed income assets like short-term treasuries and that pays a small yield the second income strategy is the use of option spreads they're called spreads because each strategy involves simultaneously buying and selling the same type of option at different strike prices important to note that just like the fixed income I mentioned a moment ago this strategy has nothing to do with actual Bitcoin instead the options are

6:57 traded on individual stocks or indexes the third strategy is what drives most of the price and income and that's entering into Bitcoin Futures contracts in other words the strategy I mentioned earlier for Beto Neo specializes in options so as you would expect their btci Bitcoin fund uses options rather than Futures step one is to replicate the price of Bitcoin by trading options on a Bitcoin ETF that ETF is Beto the one we talked about before and the strategy is called a synthetic covered call they do this by selling a BTO put and buying a Beto call at the same strike price and expiration the result is that the net price of those two options replicates the price action of

7:42 Beto which in turn somewhat replicates the price action of Bitcoin the income is created by selling out ofth the money call options on BTO so to summarize they sell a put and a call to replicate the price those two cancel each other out and don't generate any income the income comes from selling an additional call option let's take a look at the Holdings in the portfolio to understand the rest of the strategy for btci the treasuries act as collateral for the synthetic option strategy they also contribute a little bit of yield then there's H odl inside the fund that's a spot Bitcoin ETF hodl or hoddle holds actual Bitcoin in Cold Storage this asset doesn't produce income but it tracks the price

8:29 of Bitcoin I asked the fund manager Garrett about the strategy and he explained that the goal is to generate a yield of 25 to 30% per year and also get exposure to the price of Bitcoin this fund bdci is so new that we don't really have enough data to compare it to other ETFs but my take on their strategy is that it will take more of its return from the price and less from the income than some of the other funds we're looking at today I'm saying that because it holds that HL which accurately tracks the price price of Bitcoin one last point on btci they trade options on Beto which in turn uses Futures to replicate the price of Bitcoin on November 19th 2024 black Rock's ibit fund was approved for options trading ibit is 20 times

9:15 bigger than BTO and doesn't use Futures it holds actual Bitcoin for these reasons funds that were using BTO including NEOS are working on switching to ibit like NEOS roundhill also some employees a synthetic covered core strategy on the BTO ETF perhaps it will also switch from BTO to ibit note that unlike NEOS it doesn't hold hodl or any other spot Bitcoin ETF not to be confused with ibit ybit is yield Max's Bitcoin income ETF like NEOS yield Max uses options to create a synthetic covered call I mentioned that NEOS is working on switching from BTO to ibit yield Max is already using ibit for its options a key difference between ybit

10:02 and neos's btci is that NEOS holds the spot Bitcoin ETF hodl and yield Max doesn't for this reason I expect that yield Max will pay higher distributions than NEOS and NEOS will suffer less nav erosion than yield Max there's one more way to generate income from Bitcoin yield Max has an ETF that's based on the company led by Michael sailor called micro strategy this company converted all of its liquid assets into Bitcoin then issued convertible bonds to buy more Bitcoin the result is that it's a leveraged Bitcoin play or Bitcoin on steroids yield Max applies its synthetic covered call strategy to micro strategy stock and it has done very well recently

10:48 to put it mildly before you rush out and buy MST though you should understand that it hasn't performed well because it's a superior income strategy it's performed well because the underlying stock MST has performed on a level that's well difficult to comprehend Bitcoin has outperformed the S&P 500 and the NASDAQ and micro strategy is leverage Bitcoin over the past year mstr made Nvidia looked like it was standing still if we compare yield Max's MST to the underlying stock MST we can see that it would have been far better to just hold mstr I accept that Bitcoin income funds deliver lower returns than spot funds as we'll see shortly but this Gap is huge

11:33 now that you're familiar with Bitcoin income ETFs you should be aware of how they compare to spot ETFs whereas Bitcoin income ETFs use options and Futures to generate income from Bitcoin spot Bitcoin ETFs like hodl or ibit simply hold actual Bitcoin they don't generate any income the advantages of spot ETFs are number one they're more tax efficient as a general rule you pay higher rate of tax on income than capital gains and spot ETFs don't pay income number two spot ETFs have lower fees ibid is the biggest spot ETF and it charges a fee of just 0.12% number three performance drag all those options and Futures incur trading

12:20 fees and over time the fees eat into the performance also the market sentiment within the options and Futures markets themselves can effect performance if we go back to 2021 and compare Beto to the price of actual Bitcoin we can see that they tracked fairly closely for quite a while but slowly BTO began to underperform bitcoin and that Gap widened during the recent bull market next I'll add the S&P 500 to this chart to make a point about risk the 2022 bull market was bad for the S&P 500 but compared to bitcoin there was a walk in the park Bitcoin about 72% in late 2022 so if you want to play in this sandbox make sure you can

13:06 stomach that kind of volatility the first question to ask is whether you want anything to do with Bitcoin at all Warren Buffett doesn't like it but he's a value investor and Bitcoin isn't a value investment my only advice is to learn what it is how it works how secure it is what makes it unique and then decide if you want any exposure to it my current take is that I want some exposure to it because the upside is greater than the downside I'm currently at 1% allocation and I'm open to increasing that to about 5% in the future the only Bitcoin exposure I currently have is Maxi and that's mainly because it's been around for quite a while Beto has delivered similar results I like the look of btci but it's so new

13:52 I also think that that one will be better when it switches from Beto to ibit micro strategy is a little bit wild for me but I might pick up a little bit of MST next time it corrects to be clear holding Bitcoin in your own wallet or holding Bitcoin in a spot ETF will outperform any of these income funds over the long term I'm not currently doing that because my goal isn't to die with the most Bitcoin or the biggest brokerage account my goal is just to generate enough consistent income to enjoy the rest of my life so for some retirees like me we don't need the highest return we just wanted to juice up our income a bit before I go I mostly make videos about Investments I like but I like some more than others if you want a recent overview of my top 10 Holdings

14:39 none of which contain crypto click down here that wraps it up for this look at Bitcoin income funds more armchair income coming soon arch in that's myle