Summary I rate BTCI a Buy and YBIT a Sell due to BTCI's superior NAV management, stronger total returns, and effective options strategy. BTCI's European-style options and target distribution rates minimize NAV erosion and allow for capital appreciation while still providing 25-30% yields. YBIT, on the other hand, has suffered significant NAV erosion and has only managed to barely break even in total returns during a Bitcoin bull market. BTCI is also more tax efficient with its use of index options, though both funds have estimated over 95% ROC distributions. Both funds carry risks due to Bitcoin's volatility and limited options history, but BTCI's approach provides a more stable and profitable income stream for investors. Whether you believe Bitcoin will go to the moon or is a useless asset with no tangible value, one thing is certain; Bitcoin is one of the most volatile assets in this decade. When implied volatility ("IV") levels elevate, selling options can become an extremely attractive income generating strategy. Consider the NEOS Bitcoin High Income ETF ( BTCI ) and the YieldMax™ Bitcoin Option Income Strategy ETF ( YBIT ). BTCI currently yields 28.17% while YBIT yields 80.29% with their most recent distributions. Both funds seek to generate income from selling call options on Bitcoin exchange-traded products ("ETPs") and were launched last year. Although both funds have minimal history, I have determined BTCI to be the superior fund for investors with an interest in harvesting Bitcoin's volatility for income. BTCI's fund managers have done a far better job of maintaining the fund's NAV and provided much stronger total returns due to the difference in its options strategy. By having a target distribution and using European-style options, BTCI does a much better job at managing NAV and capturing upside, with the disadvantage of paying smaller premiums. These benefits far outweigh the disadvantages, though, as BTCI has had phenomenal total returns since its inception, with a still impressive 28.17% yield. I rate BTCI a Buy and YBIT a Sell. Income investors who choose to buy BTCI should do so in small, disciplined allocations. If you opt to put 1-2% of your portfolio in BTCI, review your position systematically, and don't be afraid to take some gains if the position grew to occupy a larger portion that you were originally comfortable with. YBIT Vs. BTCI's Strategy First, let's discuss YBIT. It's the fund that has been around for a little longer, with an inception date of April 22, 2024 versus BTCI's October 17, 2024. Since its inception, however, YBIT's performance has been lackluster. It amassed $123.62M in AUM and offers a yield of 80.29% based on its most recent distribution, but its price has fallen 37.70%, with total returns sitting at 10.77% in a Bitcoin bull market. Data by YCharts BTCI, on the other hand, has done far better in the short time it has been around. Since its inception, the fund has generated 41.52% in total returns and seen its price grow 28.95%. Yes, it still lags directly holding Bitcoin or a Bitcoin spot ETF like IBIT, but this is the nature of a covered call strategy. Selling a covered call option caps your upside in exchange for income, so we do need to compare it to other investments with similar strategies. In comparison with YBIT, BTCI has done far better. The fund has captured about 75% of Bitcoin's total returns, while YBIT has only generated about 45%. BTCI does have less AUM with $67.51M currently and a smaller distribution rate, but its expense ratio is slightly better at 0.98% versus YBIT's 0.99% in addition to its total returns. Data by YCharts In theory, YBIT's synthetic covered call strategy should not suffer the capital erosion we have witnessed since its inception. Per its prospectus , the fund sells 0-15% out-of-the-money ("OTM") calls on various Bitcoin ETPs such as IBIT and BITO. In addition to selling their calls OTM, YBIT also has the ability to enter call spreads instead and buy call options further OTM to allow for capital appreciation. For example, in their current holdings, we can see call options sold on IBIT at strike prices between 62 and 63.5 as well as a bought IBIT call option at a strike price of 66.5. But when you look at YBIT's price returns with distributions highlighted, you'll see that YBIT's distributions just cause too much NAV erosion. Keep in mind that if an asset falls 20%, it'll take a 25% return for it to recover to its original price. Covered call premiums will, of course, offset some of these losses, but it is extremely difficult for YBIT's fund managers to correctly assess Bitcoin's conditions every time. Data by YCharts YBIT Current Holdings (YieldMax ETFs) BTCI avoids YBIT's NAV erosion problem by having target distribution rates and leaving more room in the portfolio for capital appreciation. In an interview on the Passive Income Investing YouTube channel with one of NEOS' Managing Partners, Troy Cates, Cates discusses how the fund managers have a 25-30% target distribution and will opt to leave 25% or more of the portfolio open for capital appreciation. Essentially, once they meet the yield target, there's no need for BTCI to sell more calls, which is why they have achieved much better total returns and zero NAV erosion when they use basically the same synthetic covered call strategy of creating a synthetic long Bitcoin position through options and selling OTM calls and occasionally call spreads. Currently, BTCI has two calls that are 10% and 18% OTM and only cover 50% of its portfolio. BTCI Current Holdings (NEOS Investments) At this point, it can seem like BTCI is the more conservative version of YBIT where they simply sell less calls and set strike prices further OTM, but there is one more small difference that can make a huge impact on the choice between BTCI and YBIT. This small difference is BTCI's selling of index options, specifically CBTX, the Cboe Bitcoin U.S. ETF Index option. CBTX contracts get section 1256 tax treatment , where premiums are taxed on a 60% long-term capital gains and 40% short-term capital gains basis. This is far superior to YBIT's use of spot ETF options that are subject to ordinary income taxes. That said, both funds have 19a-1 notices estimating over 95% ROC, but we will have to reevaluate when official tax documents come out. Please do consult a professional tax advisor for your personal situation. Index options also give BTCI an advantage that makes me more comfortable with BTCI as an income investment than YBIT. The options are European-style, where a key benefit is that the options are not exercised until their expiry date, and it's good to note that even before using CBTX, BTCI was selling FLEX BITO options (note the 2 in front of BITO call options), which have the same exercise style benefit. BTCI Holdings During PII Interview (Passive Income Investing YouTube) The result is that managing BTCI is far simpler than YBIT. When BTCI doesn't have to worry about getting assigned early, it's much easier to keep track of how much income the fund generates every month and it allows the fund managers to take the optimal path for hitting their target distributions while maintaining strong capital appreciation. This is also the reason why you may have noticed BTCI's option holdings are far simpler than YBIT's. YBIT sells numerous options at different strike prices to avoid having everything assigned simultaneously and ultimately relies so much more on the fund managers performing exceptionally. For most income investors, BTCI is the better choice than YBIT. Of course, that's not to say that BTCI isn't without its risks, and there are situations where YBIT may outperform BTCI. Both funds face significant risks due to their inherent nature. If Bitcoin continues to grow as it has, both funds will be unable to capture the full upside and with how many of these Bitcoin ETPs are also less than a year old, I also warrant heavy caution with investing large sums of money into both funds as we don't have a long history of the liquidity of these products nor adequate history of how institutional options trading may affect them. That said, Bitcoin's volatility and size make it a worthwhile asset to trade options on for income and offer some diversification to a different asset class in your income portfolio. If you are choosing between BTCI and YBIT, however, BTCI is the much better choice despite lower distributions. Hence, I rate BTCI a Buy and YBIT a Sell.
