Key Points
BlackRock now offers two Bitcoin exchange-traded funds, with each providing unique exposure.
Investors starved for yield will find that this product can perform well in sideways markets.
Bitcoin bulls will stick to buying the actual digital asset and holding it in cold storage.
Bitcoin(CRYPTO: BTC) is taking it on the chin. The dominant cryptocurrency currently trades 51% off its all-time record (as of July 2).
This bear market hasn't stopped BlackRock(NYSE: BLK) from continuing to expand its related product suite. With the January 2024 launch of the iShares Bitcoin Trust, the massive asset manager already has a stake in Bitcoin's success. Even with record net outflows in June, this exchange-traded fund (ETF) currently has $44 billion in total assets.
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BlackRock isn't done. It just launched the iShares Bitcoin Premium Income ETF(NASDAQ: BITA) on June 9. Is this new investment vehicle a buy?
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Generating income from a no-yield asset
The iShares Bitcoin Premium Income ETF "seeks to track the performance of bitcoin while generating premium income through an actively managed options strategy," according to its website. The ETF, which comes with an expense ratio of 0.65%, uses a covered call strategy. The portfolio's holdings consist of Bitcoin and the iShares Bitcoin Trust.
This ETF is different from BlackRock's previous Bitcoin offering. The iShares Bitcoin Trust owns the underlying cryptocurrency and a tiny amount of cash. Its sole purpose is to track the digital asset's price movements.
The iShares Bitcoin Premium Income ETF provides access to Bitcoin in a unique way. It caps exposure to Bitcoin's upside, since the options strategy forces the ETF to sell its positions if the crypto's price rises above a certain threshold. If its price is surging higher, these investors won't capture the entire gain.
However, the ETF provides better downside protection. If Bitcoin is volatile but continues to trade sideways, there's a nice income stream. Based on the ETF's upcoming July 8 distribution of $0.52 per share, the annual yield amounts to 12.5%.
Bitcoin doesn't produce income. The iShares Bitcoin Premium Income ETF is structured to provide investors with a way to earn a yield. Some market participants will find this extremely valuable.
Built for a specific investor
BlackRock offers 487 different ETFs to its client base. The investment firm has a front-row seat at the assets, themes, and exposures that the investment community desires. It can leverage its vast resources to create and distribute these products.
Therefore, I suspect there will be demand for the iShares Bitcoin Premium Income ETF, even though its asset base of $43 million is tiny right now. Bitcoin is in a bear market. Disappointed by the lack of any gains, investors are starved for yield. Leave it to a colossal Wall Street entity to engineer a product that can generate fee revenue, while targeting investors who are interested in a unique approach to Bitcoin.
Only buy this ETF if you expect the cryptocurrency's price to grow at a slow pace in the future. If you're extremely bearish, then stay away.
Bitcoin bulls, on the other hand, won't find this ETF attractive for their portfolios. To them, buying the digital asset outright and holding it in cold storage is still the best course of action.
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Neil Patel has positions in iShares Bitcoin Trust. The Motley Fool has positions in and recommends Bitcoin, BlackRock, and iShares Bitcoin Trust. The Motley Fool has a disclosure policy.
