Viewing BTCI Through The Lens Of BTC In 2018 And 2022

Summary NEOS Bitcoin High Income ETF has a covered call strategy on Bitcoin, aiming to monetize volatility with a 26.72% annualized distribution rate. BTCI holds about 70% in T-Bills and 30% in Bitcoin exposure, actively managing synthetic covered calls to generate monthly income. I think BTCI becomes interesting in front of a hypothetical sideways and accumulation trend on BTC-USD. BTCI carries significant risk, an annualized volatility of 39.39%, and limited upside in strong Bitcoin rallies, making it unsuitable during bullish momentum. A Bitcoin-themed ETF that distributes income flows? I'm thinking of NEOS Bitcoin High Income ETF (BTCI). And today I come back to think about it following a deeper reasoning made earlier about Bitcoin. I think the market phase that awaits us makes not only Bitcoin, but also in the short-medium term, interesting covered call solutions like BTCI. But before talking about this… What Is BTCI? It's an actively managed income engineering ETF built on Bitcoin. So let it be clear from the start, the investor is not buying Bitcoin with an ETF wrapper; they're buying a strategy to monetize Bitcoin's volatility. BTCI - fund profile (Seeking Alpha) In fact, it costs more than classic passive management on Bitcoin: here, the expense ratio is 0.99%, while that of other ETFs like the iShares Bitcoin Trust ETF (IBIT) or the VanEck Bitcoin ETF (HODL) is 0.12-0.25%. This, however, is apparently justified by a current annualized distribution rate of 26.72% (12-Month Trailing Distribution Rate: 36.80%). BTCI - dividend grade (Seeking Alpha) What Is It Made Of? BTCI is almost 70% a money market fund in T-Bills. Only about 30% of the capital is effectively "at work" in direct exposure to Bitcoin. It has about 15.25% in the iShares Bitcoin Trust ETF (IBIT) and about 9% in the VanEck Bitcoin ETF (HODL). Then there's a Synthetic long exposure mechanism with the call CBTX C1600, long combined with the sale of puts (CBTX P1600, short) at the same strike, creating a payoff equivalent to direct ownership of Bitcoin. To this structure, a synthetic covered call mechanism is applied (fairly traditionalist). The fund overwrites out-of-the-money calls, for example, the CBTX C1930 and C2010. BTCI - top 10 holdings (Seeking Alpha) The premium collected is an important source of the monthly distribution. Like a scale, if Bitcoin doesn't exceed the strike of the sold calls at expiration, the options expire worthless and the fund keeps the premium. If Bitcoin exceeds the strike, the calls are exercised, and the fund gives up the upside beyond the strike. Distributions that are distributed as Return of Capital ((ROC)) (the 19a-1 notice of January 2026 states that approximately 96% of distributions are classified as ROC). Note, I want to point out, the mechanism is not a full mechanical overlay. The presence of two different strikes and the active management declared in the prospectus confirm that NEOS calibrates the overlay in a discretionary manner. Peer Comparison I think the ETF closest to BTCI is YBTC by Roundhill. They are two solutions that work with synthetic covered calls, but the difference is that only options (flexibility on direct Bitcoin ETF) and that YBTC has a weekly distribution frequency. BTCI - YBTC (Seeking Alpha) It's impossible not to notice how the distribution rate of YBTC is 76%, very wide, and potentially a greater risk of capital erosion, all the more so if we consider that these are even more frequent, weekly distributions. BTCI - YBTC (Seeking Alpha) But despite this, the total return function doesn't express this greater erosion. But in my opinion, one must not be fooled: in a bear market, the NAV erosion mechanism is masked by the decline of the underlying. The call premium softens, volatility increases, and the weight of distributions is less evident (indeed, in a certain sense preferable). But in an expansive context, in my opinion, there would not be the same leniency; distributing capital before an expansive cycle reduces the capacity (in my view) to generate greater future gains. Naturally assuming equal individual entry and exit strategies and management of collected dividends. My View on BTCI Those who follow me are aware of my bullish view on Bitcoin. And I think the latest evidence confirms this view, despite a divergence in price. Adapting this view to BTCI, the thing becomes, in my opinion, interesting at these price levels: I prefer to take a position in a phase of potential accumulation to minimize the average cost basis of BTCI and therefore also avoid constantly reinvesting distributions. And today I, personally, find 2 reasons to hypothesize the continuation of an accumulation phase: Macro First of all, President Trump's peace narrative. As much as the president's rhetoric progressively loses weight for the markets, the words of these days cannot go unnoticed. The interruption of the conflict and the return to business of the Hormuz channel are an important catalyst from a macro point of view. This is because, even though it can't give us back the purchasing power that inflation took from us, it at least softens the 5- and 10-year BEPs and leaves room for the intermediate and long yield curves to breathe. A normalization of US Treasury yields reduces the opportunity cost of holding Bitcoin and potentially frees up liquidity. And we all know that a scarcity-based model like BTC greatly appreciates phases of this kind. And a confirmation in this sense we find in the recent contraction of the DXY (dollar index). DXY (Seeking Alpha) Technical This is a phase of extreme divergence for Bitcoin: risk-on assets are gaining capitalization, while the father of crypto is paradoxically losing it. And simply, if it were a distribution phase, in my opinion, we would have witnessed wider oscillations: strong hands prefer to sell near "highs," not keep the price in low zones. While Bitcoin's price action has been "forced" to the lows and today finds itself above the 200-period moving average on the weekly timeframe and at the level of 30 on the weekly RSI. A level that statistically has represented an accumulation zone for the market. BTC - USD price (Seeking Alpha) My Opinion on BTCI Why do I, personally, appreciate these two pieces of evidence even moving to BTCI? Because accumulation zones tend to be medium-term sideways, like in 2022 and 2018, phases in which sentiment falls even though fundamentals suggest upside. And in sideways phases of this type, having covered call strategies accumulates premiums that more greatly justify the medium-high distributions of BTCI. BTC - USD price (Seeking Alpha) Distributions that can generate income, potentially collectible while maintaining a competitive average cost basis, in view of a potential appreciation (or to be deployed on other assets depending on strategies). Naturally, this remains my opinion; certainly not without risks. Risk Having premiums from a covered call strategy and high distributions does not mean not bearing the weight of a Bitcoin bear market. BTCI fully absorbs the BTC decline 100% and not by chance maintains an annualized volatility of 39.39%. A dimension that justifies a D- grade for SA, a red flag of no small account that an unaware investor should, in my opinion, keep well in mind. BTCI - Risk grade (Seeking Alpha) Without considering that these kinds of strategies also limit the upside in a potential Bitcoin recovery, the classic V-shaped recoveries, the price of BTCI would not be able to keep up with those growth rates; for this reason, personally, I would never buy BTCI in a phase of positive momentum of the underlying because the probability of ending up with an average cost basis higher than the future average of BTCI prices widens significantly. Conclusion I think the right rating for BTCI is BUY today. As much as it's a risky structure, and I want to point it out, BTCI seems to have placed itself in a potentially stimulating market context. Specifically, a phase of potential lateral accumulation for Bitcoin, which makes covered call strategies interesting.