BlackRock Launches Bitcoin ETF Offering Yield Through Options

In brief

BlackRock unveiled an ETF that limits Bitcoin gains in exchange for double-digit payouts by selling call options on its holdings.

Under current market conditions, the ETF would offer "a mid-to-high-teens yield," according to BlackRock's Robert Mitchnick.

The ETF's debut comes after Goldman Sachs filed an application for a similar yield-generating product in April.

BlackRock will begin offering an exchange-traded fund to investors that limits Bitcoin gains in exchange for double-digit payouts, the Wall Street giant announced on Tuesday.

The iShares Bitcoin Premium Income ETF, which is set to begin trading on the Nasdaq under the ticker symbol BITA, seeks to provide investors with participation in the digital asset’s upside while generating monthly options premium, BlackRock said in a press release.

To mirror Bitcoin’s market price, the fund splits its holdings between actual cryptocurrency and BlackRock's iShares Bitcoin Trust ETF (IBIT). It then generates cash for its monthly distributions by selling options contracts against up to 35% of the portfolio.

In an interview with Decrypt, Robert Mitchnick, head of digital assets at BlackRock, described the ETF as a “hybrid Bitcoin exposure product” that’s establishing a different payoff and yield profile than the firm’s $48.6 billion industry-leading alternative.

“The way the math works today, you can think of it as 70% upside retention in IBIT and a mid-to-high-teens yield,” he said. “It’s going to be pretty compelling, we think, to a lot of investors.”

To generate that payout, the fund sells call options on a portion of its holdings every month. These options give buyers the right to purchase the fund's IBIT shares at a set price if the market rallies, in exchange for an upfront fee known as a premium.

Because Bitcoin volatility is historically high, these premiums are typically valuable, allowing the ETF to harvest steady income and distribute it to investors under what BlackRock described as a “favorable blended tax treatment” on gains realized from option premiums.

Mitchnick said the ETF’s yield component, as well as its relatively conservative nature, could be more appealing for financial advisors relative to IBIT. He said the same applies to other institutional investors who may not have exposure to the digital asset yet.

“There’s no question that some of the challenge that they’ve had getting over the hump on Bitcoin in the past has been the absence of the yield,” he said, referencing insurers and pension funds as examples.

BlackRock filed an application for BITA in January, and the product is set to compete with the NEOS Bitcoin High Income ETF, which has a higher expense ratio and debuted in 2024. In April, Goldman Sachs filed an application for a similar yield-generating product.

BlackRock has established several ETFs that track Ethereum’s spot price, but Mitchnick said the firm has no plans to establish similar products for that asset, considering that one of the company’s offerings provides yield-like payouts via staking.

“As successful as our Ethereum products have been, Bitcoin is at a whole ‘nother level,” he added. “There’s much more client demand, so the opportunity to build adjacent products on Bitcoin is higher than it is for any other crypto asset.”