YBIT: ~46% Distribution Yield, But Peer Looks Better

Summary YBIT offers high income via call writing on Bitcoin exposure, but the usual caveat exists with capped upside potential if Bitcoin rallies strongly. We covered BTCI recently, and we made several comparisons between the two, where BTCI looks like the stronger fund. YBIT's monthly distributions are attractive for income-focused investors, but they can be quite volatile, similar to the underlying asset. Written by Nick Ackerman, co-produced by Stanford Chemist We recently covered the NEOS Bitcoin High Income ETF ( BTCI ), which gives investors a fairly straightforward strategy of Bitcoin ( BTC-USD ) exposure while also writing call options to generate 'high income.' However, that isn't the only ETF in the space, and another one of the competitors out there is the YieldMax Bitcoin Option Income Strategy ETF ( YBIT ) . This is a fund sponsor that focuses specifically on generating 'yield' for income-focused investors, as its name would suggest. Given our recent dive into BTCI, we'll be making many comparisons between the two funds. YBIT Basics Dividend Frequency: Monthly Dividend Yield: 1.54% SEC yield, 45.72% Distribution Yield Expense Ratio: 0.99% Leverage: N/A Managed Assets: $152.63 million Structure: Active ETF YBIT's investment objective is "to seek current income." They also have the secondary investment objective to "seek exposure to the share price of the Bitcoin ETPs, subject to a limit on potential investment gains." The fund will seek to achieve this through "a synthetic covered call strategy on one or more select U.S.-listed Bitcoin ETPs." YBIT's Portfolio YBIT is fairly straightforward and quite similar to BTCI, which we covered previously. They provide exposure to BTC primarily through another ETF. For BTCI, they hold a sizeable stake in VanEck Bitcoin ETF ( HODL ), but they also have synthetic exposure through purchasing call options and selling put options. YBIT is long the iShares Bitcoin Trust ETF ( IBIT ) with a sizeable stake, and then the written call contracts. Further, both also have other cash and cash-equivalent positions through U.S. Treasuries. Within their prospectus , the fund also states that the fund can use a synthetic covered call strategy. 1. Synthetic Long Exposure To achieve a synthetic long exposure to each Underlying ETP, the Fund will buy call options on each Underlying ETP and, simultaneously, sell put options on each Underlying ETP to try to replicate the price movements of the Underlying ETP. The call options purchased by the Fund and the put options sold by the Fund will generally have one-month to one-year terms and strike prices that are approximately equal to the then-current share price of their corresponding Underlying ETP at the time the contracts are purchased and sold, respectively. The combination of the long call options and sold put options provides the Fund with investment exposure equal to approximately 100% of their corresponding Underlying ETP for the duration of the applicable options exposure. In addition to employing its synthetic options strategies described above, the Fund may achieve similar indirect exposure to each Underlying ETP by purchasing deep in-the-money ((ITM)) call options. Deep ITM call options have strike prices significantly below the current share price of the corresponding Underlying ETP, allowing the Fund to replicate the price movements of the Underlying ETP with minimal intrinsic value risk. The deep ITM call option approach may serve as an alternative to the synthetic long strategy or may be used in conjunction with it, depending on market conditions and the Adviser’s discretion. However, the latest holdings don't reflect that they are employing the strategy through an options approach, but simply through IBIT. YBIT Holdings (YieldMax) When looking at YBIT, the expense ratio for the fund is 0.99%. Since more than half of the underlying portfolio is another ETF, considering the IBIT expense ratio can be important too, which comes in at 0.25%. For some context, BTCI's expense ratio comes to 0.98% with HODL's expense ratio being waived through January 10, 2026. However, there is some fine print; if the ETF garners over $2.5 billion AUM before that date, the fund will see assets above that level charged 0.20%. Post that waiver date, all assets will see a 0.20% expense ratio. With that said, it would favor BTCI currently on the expense front. In addition, that is particularly true because HODL comes to around 25% of BTCI's exposure. So that is something to consider if trying to decide between the two. High 'Yield' From Options The written option contracts will help to generate the 'income' via the collection of option premiums. Since BTC is quite volatile, the underlying options on the CBOE Mini Bitcoin U.S. ETF Index (MBTX) comes with relatively high implied volatility—at least when compared to something like the broader equity market as measured by the SPDR S&P 500 ETF ( SPY ). When we looked at BTCI, it was around double. At the time of writing this, it is even higher by a significant margin, with implied volatility at around 37% for MBTX at the $290 strike, which we see listed in YBIT's holdings above. That can be compared to ~11% for SPY on the first few strikes above the current ~$623 trading level. MBTX Option Chain (Fidelity) That's how you can end up with distribution rates that are well into the double-digits. YBIT Distribution Yield (YieldMax) For those curious, the 30-Day SEC Yield is the result of the U.S. Treasury holdings minus the expense ratio. So there are some small amounts of interest payments being generated within the portfolio that would also be paid out to investors. It's just very small and quite insignificant when looking at the overall ~46% distribution rate. The fund also pays monthly, but just as fluctuating as the underlying asset is impacting the implied volatility, its payout can equally be as volatile. The monthly pay certainly means that investors don't have to wait too long between payments, though. YBIT Distribution History (Seeking Alpha) While the option writing generates the attractive distribution yield that investors are looking for, it also comes with a downside. For investors who are familiar with call writing funds, they know that upside can be capped. This is because, for example, if MBTX rises rapidly above the $290 strike price, YBIT's gains are capped at that level. The breakeven would be $290 plus the premium received, though the premium is paid out to investors in this case, meaning the NAV/share price is adjusted for that. In looking at BTCI previously, we already know that gains have been capped relative to its ETF holding, HODL, which offers straight exposure to BTC. Now, we can compare YBIT, BTCI, HODL and IBIT—which we can see that YBIT is underperforming by a significant margin relative to BTCI. YCharts Data by YCharts We would assume that it would underperform HODL and IBIT, because we know that BTC has been blasting higher at a rapid clip. That's why we see BTCI underperform as well. Still, the sheer difference between YBIT and BTCI is a bit shocking, at least initially. This is certainly more than just the higher expense ratio we see for YBIT. In this case, it appears that YBIT ends up giving up further upside by being overwritten through covered calls relative to BTCI. BTCI uses synthetic long positioning, and while YBIT has it stated in their prospectus that they can as well, they don't appear to be utilizing that strategy. At least, if they are, it appears that they aren't doing so as effectively. For example, coming out of the April decline and into a strong May, it is quite likely that they started overwriting the portfolio to a lesser degree to participate in the upside recovery. I don't follow this fund every day, watching every single holding they have, that's why management gets paid their advisory fee; however, simply looking at the chart suggests that's a pretty good educated guess of what occurred. With that said, one of the reasons I would still prefer to hold some exposure to something like BTCI (and I own ProShares Bitcoin ETF ( BITO ), which is a different approach) is that they pay distributions. Every distribution received is a 'guaranteed' return in the fact that those cash distributions can't be pulled back. At least, if one doesn't reinvest it back into the fund or elsewhere. When holding funds like HODL or IBIT, or even BTC itself, you're at the whims of the daily market fluctuations in terms of your returns. Conclusion YBIT is another offering in the Bitcoin space that looks to generate a yield from writing call options. This would be thanks to high implied volatility, which leads to some truly massive distribution rates that can be generated from the strategy. However, it can also cap upside if BTC continues to rise at a rapid pace. For YBIT, that does appear to have been an issue relative to BTCI. BTCI still saw its upside capped relative to straight vanilla BTC ETFs, as expected, but to a meaningfully lesser degree. Past performance does not guarantee future results, but at least for this relatively short tracking period, the win would go to the NEOS team.