After the enormous success of iShares Bitcoin Trust (IBIT), which currently manages roughly 60% of the US Bitcoin ETF market, BlackRock, the world’s largest asset manager, has submitted to launch a new product called the iShares Bitcoin Premium Income ETF.
This fund differs from BlackRock’s previous spot Bitcoin ETF. Besides tracking Bitcoin prices, this new product also generates income for investors.
This is done by selling options such as cover calls, Bitcoin or Bitcoin futures and distributing the collected premiums to investors as regular payments.
As Bloomberg ETF Analyst Eric Barknath said, “This is a covered Bitcoin strategy to give BTC some yield. This is a sequel to the ’33 ACT Spot product, 87B $IBIT.”
Ishares Bitcoin Premium Income ETFs essentially use Bitcoin volatility to generate income. Instead of betting on whether Bitcoin prices will rise, the fund “renches” Bitcoin exposure by selling optional contracts.
How does this work?
Imagine the fund owning one bitcoin worth $112,000. They will then sell the calling options at an act price of $118,000. Option buyers pay a premium (e.g. $3,000) to the fund for the right to purchase Bitcoin at that strike price.
If Bitcoin is below $118,000, the ETF will maintain both Bitcoin and $3,000. If Bitcoin rises above $118,000, the ETF still wins $3,000, but gives up on profits above that price.
This means investors will receive regular payments, but once Bitcoin gathers, their advantages are capped. Rather than being exposed to the price of Bitcoin, the trade-off appeals to another group of investors who need cash flow.
BlackRock says the product is for income seekers, conservative investors, and institutions who prefer a steady return on wild price fluctuations in Bitcoin. “Investors are looking for ways to profit from Bitcoin while minimizing price volatility.” The company said in a statement.
This new ETF is intended to complement IBIT, not to replace it. The IBIT mirror mirrors the price of Bitcoin directly, while the premium revenue ETF is designed to generate yields. Together, they offer investors a choice of growth and income strategies.
Others say this could make Bitcoin more institutional appeal to pension funds and insurance companies that require regular cash flow.
BlackRock’s involvement in digital assets is fast. Its spot Bitcoin ETF, IBIT, has drawn over $80 billion since its launch in January 2024.
Like many ETFs, BlackRock was submitted to Delaware. The state is popular with financial institutions due to its business-friendly regulations and tax benefits. Industry analysts say Delaware’s flexible legal environment will help speed up approvals and build trust with investors.
