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Summary Bitcoin has surged 148% this year, with a 65% rise post-election, driven by potential policy support from the incoming President. I have a buy rating on the YieldMax Bitcoin Option Income Strategy ETF for lower-risk exposure to bitcoin, despite its high expense ratio. YBIT's covered call strategy offers income from bitcoin's volatility, but caps upside gains; it's up 29% versus IBIT's 73% in three months. Seasonal trends favor bitcoin in Q1, making YBIT a compelling play amid high implied volatility and potential consolidation in bitcoin prices. Bitcoin is up 148% so far this year. Just since the US election, the world’s most valuable cryptocurrency has risen by about 65%. Indeed, bitcoin and its related ETFs have been perhaps the ultimate Trump trade. With the incoming President poised to potentially move to create a “bitcoin reserve” and allow the industry to write its own regulations, there are clear fundamental and policy tailwinds at play for the years ahead. A new ETF is on the scene to help investors potentially capture even more return from bitcoin. The YieldMax Bitcoin Option Income Strategy ETF (YBIT) is a covered call strategy on spot bitcoin. I have a buy rating on the product as I see it as a lower-risk (though with less upside too) play on bitcoin. Its primary drawback is an elevated expense ratio, but I see the fund as being a viable option for those seeking option premium income return from a notoriously highly volatile asset. As it stands, traders price in the potential for 20% more upside to bitcoin this year, underscoring its high volatility. Of course, this is just a ‘max price’ market, and nobody knows how the token will trade for the balance of 2024 and beyond. More Bitcoin Gains to Come? High Volatility Expected Kalshi According to the issuer , YBIT seeks to generate current income via a synthetic covered call strategy on one or more select U.S.-listed Bitcoin ETPs. YBIT is actively managed by ZEGA Financial. When selecting Bitcoin ETPs on which to trade options, ZEGA focuses primarily on the following two key factors: Preference for Bitcoin ETPs that hold “physical” or “spot” Bitcoin over such ETPs that reference Bitcoin indirectly via futures contracts. It prefers Bitcoin ETPs that have sufficient option liquidity to support YBIT’s trading activities. The Fund’s primary investment objective is to seek current income. The Fund’s secondary investment objective is to seek exposure to the share price of the Bitcoin ETP(s), subject to a limit on potential investment gains. YBIT is a small ETF with just $105 million in assets under management as of December 17, 2024. Its annual expense ratio is high at 0.99% while the forward dividend yield is very high at 46%. Of course, the high distribution rate is due to option premium generation that is procured from writing call options on bitcoin-related products. The dividend does not come from the cash flows of a company – that's a key difference for prospective investors to recognize. On liquidity , I also encourage prospective investors to use limit orders during the trading day since the ETF’s median 30-day bid/ask spread is high at 28bps, per YieldMax. Share-price momentum with YBIT is strong right now given bitcoin’s rapid appreciation in the past seven weeks, but its relative return to spot bitcoin is weak due to the nature of capping potential upside through selling upside call options. In the past three months, YBIT is up 29% (total return) compared to a 73% gain in the iShares Bitcoin Trust ETF (IBIT). IBIT Soaring, YBIT's Return About Half Last 3 Months Seeking Alpha I also assert that paying attention to seasonal trends with anything crypto-related is key, as the market moves not on fundamentals like profits of a company, but rather on animal spirits like fear and greed. Bitcoin has tended to perform well over the first three months of the year; since 2021, only January 2022 was a negative month in Q1. So, that would augur for a long bitcoin position. Aggressive investors might choose to buy something like IBIT while those who are more risk-sensitive might prefer YBIT. In general, a call-selling strategy should outperform when the asset it tracks falls or trades sideways, but underperforming during quickly rising markets. Bitcoin Seasonality: Strong Q1 History Barchart Now let’s take a look at a key variable for an option-income fund: volatility. Today, implied volatility on bitcoin (using IBIT as a proxy) is high at 60%. Historical volatility has ranged from 40% to 75%, so IV is not too far from where we’d expect it. I think that there may be added implied volatility discounted into bitcoin with the new year looming – a risk is that we could see so-called “tax gain” harvesting among holders who want to sell, but do not want to realize a gain until the following tax year. IBIT: Implied Volatility Near 60% Fidelity Investments As for YBIT’s distribution history, there have been varied monthly payouts. When implied volatility is higher, I would expect larger dividends. The July and November distributions were relatively large, so those who are sensitive to taxes must be aware that high payouts can come about with relatively little warning – July and November were very different in terms of bitcoin returns, so I will be curious to see what the December distribution will be. YBIT: Distribution History YieldMax ETFs YBIT currently uses IBIT options to create its bitcoin exposure. I like that since IBIT is the largest spot bitcoin ETF, so liquidity is high. YBIT: Holdings & Dividend Information Seeking Alpha The Technical Take Now let’s briefly take a look at bitcoin’s technical situation. Notice in the chart below that shares broke out from a bull flag pattern following the November election. Then, $100k was near-term resistance, which the bulls managed to get through without too much delay. I see a measured move upside target to $115k-$120k based on the $45k range height of the 2021-2024 cup and handle pattern. We are getting close to that zone now. Considering that bettors see a $124k max price this year, we might be due for limited upside in the months ahead, making YBIT a compelling play compared to an outright long bitcoin position. Bitcoin: Upside Target $115k-$120k, $100k Support Stockcharts.com The Bottom Line I have a buy rating on YBIT. Now could be a favorable time to own a covered call play on bitcoin, with potential consolidation on tap. Bullish seasonal trends suggest that a material downside move is not too likely, so holding some long exposure with YBIT also fits the narrative and broad set of indicators I see today.
