BTCI: Unlocking Bitcoin's 28% Annual Distribution Yield

Introduction

Building an income-focused portfolio can be tricky. Sometimes we have to sacrifice immense upside price potential for our desired income — especially when it comes to those high-octane growth stocks.

Lucky for us, over the last few years industry incumbents have introduced covered call option strategy ETFs for nearly every high-flying index out there — Nasdaq-100, Russell 2000, etc.

However, it wasn't until recently that an income-focused alternative to these high-flying spot Bitcoin ETFs came about. As an income-focused investor, the NEOS Bitcoin High Income ETF (BTCI) is my favorite way to own Bitcoin.

By offering its investors a 28% annual distribution yield, this ETF is the best way to own Bitcoin in your portfolio if you care about both monthly income and potential price appreciation in rising markets.

In this analysis, I'm going to…

• Walk you through BTCI’s investment strategy
• Reflect upon its performance since inception
• Suggest where it might fit inside of your income-focused portfolio

Let's dig in!

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BTCI’s Investment Strategy

The NEOS Bitcoin High Income ETF BTCI seeks to distribute monthly income generated from writing call options on Bitcoin via Bitcoin index options — which seems to be the first ETF to do so. Given Bitcoin's historically high volatility, the management team is able to write out-of-the-money call options that don't cover the entire value of the portfolio. This means BTCI's price has the opportunity to move up and down with the price of Bitcoin.

For example, as of 1/13/25 the fund left 22% of its notional value "uncapped." In this scenario, that means 22% of the fund's value can move freely alongside the price of Bitcoin — unburdened by the "cap" of the premium income generated by writing call options.

This specific strategy is important for two reasons:

1. The Achilles heel of these covered call ETFs that could cause them to underperform their benchmark index is writing covered call options against the entirety of the portfolio. When you do this, the ETF's performance is capped by the total amount of premium generated during the month. If you're writing a covered call option contract 3-5% out-of-the-money, once the price of the ETF appreciates beyond that strike price you're technically "losing money."
2. To address this problem, the NEOS Bitcoin High Income ETF only writes against a portion of the notional value of the portfolio. We know Bitcoin is a very volatile asset — moving up by +39% during the month of November alone. The fund's management team wants to ensure investors can realize moves like that, while pursuing the primary objective of high monthly income.

But is this strategy actually working?

Let's analyze the fund's performance since inception and find out.

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BTCI’s Performance Since Inception

The NEOS Bitcoin High Income ETF began trading on October 18, 2024. The fund began trading at $50 / share, while the price of Bitcoin was ~$68,000.

As of 1/13/25, the price of Bitcoin has appreciated by +39.7% to ~$95,000 per coin. During the same period of time, BTCI's total return was +31.5% — capturing nearly ~80% of Bitcoin's total return while paying their investors monthly income.

Since inception, the fund has paid investors $4.00 in cash distributions. $1.13 per share in October, $1.41 per share in November, and $1.46 per share in December. Assuming you purchased shares of BTCI at $50 / share — that's an 8% yield paid to investors in only 3-months time.

As of its most recent $1.46 per share distribution in December, the fund is offering investors a 28% annual yield — while simultaneously giving investors the opportunity to realize Bitcoin's price appreciation. The price of BTCI has already appreciated by +20% since inception in October.

As an income-focused investor, this ETF is exceeding expectations. If you're someone who's a bit intimidated by Bitcoin volatility, having that monthly income certainly helps. For example, the total return of BTCI during the month of December was -2.4%, compared to the total return of the price of Bitcoin being -4.3% — a +1.9% difference.

If you can stomach Bitcoin's volatility, more power to you!

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Where BTCI Might Fit Inside of Your Income-Focused Portfolio

Being an income-focused investor has its perks — the names we usually hold inside of our portfolios tend to have resilience during market downturns, we get paid tax-efficient cash on a monthly / quarterly basis, and dividend growth stocks tend to outperform benchmark indices over a long enough time horizon.

However, this investment strategy also has its drawbacks — including the lack of high-octane investment opportunities.

With that being said, I'd argue two things are true:

1. Being an income-focused investor doesn't have to be boring. There are plenty of tax-efficient covered call ETFs that closely track the total performance of the S&P 500, Nasdaq-100, and Russell 2000 — specifically SPYI, QQQI, and IWMI — that offer double-digit annual distribution yields and upside price potential in rising markets.
2. Everyone should allocate 5-15% of their investment portfolio to Bitcoin, as this asset class over the last 15-years has proven to outperform the stock market over a long enough time horizon.

Now that the team over at NEOS has introduced a covered call Bitcoin ETF whose strategy both offers high monthly income and price appreciation in rising markets, there's no excuse to stay on the sidelines.

Personally, I've been a Bitcoin investor since 2017.

Now as I shift my focus away from high-octane opportunities and instead toward income-focused ideas — BTCI is how I will continue to have a ~10% allocation to the evolving asset class throughout my wealth building journey.

In my opinion, it's the best of both worlds.

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Disclaimer: This is not financial advice or recommendation for any investment. The content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. I/we have a beneficial long position in the shares of BTCI, SPYI, QQQI, and IWMI either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor.