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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.