Dividends in Bitcoin, the new bet for ETF managers

Although managers charge maintenance fees for their Bitcoin ETFs, some are betting on a new strategy to attract customers. We are talking about paying dividends, something that is difficult to find when investing in Bitcoin.

According to data collected by Protos, at least three ETFs are already exploring this new approach. Examples include the funds of Canadian Purpose Investments and US companies Simplify and Roundhill Investments.

Another manager who may be keeping an eye on this trend is Grayscale, which currently manages the largest Bitcoin ETF in the world, as well as the highest prices on the market. This could change your cash flow again in the future.

How can managers offer dividends on Bitcoin ETFs?

For those who have been in the market for a while, Bitcoin dividends may remind you of sad stories of scams, bankruptcies and defaults. After all, the company offering these returns has to generate revenue somehow, which is very difficult.

However, the strategy of some managers seems to explain the source of these dividends. This is related to the derivatives market, more specifically options.

Basically, an investor can buy an option with a deadline of December 2024, assuming that the price of Bitcoin will reach $100,000 on that date. If BTC closes below this value at contract expiration, that investor wins nothing. If it closes above, he is not entitled to an additional amount above the agreed amount.

The same thing happens to those who bet on Bitcoin falling, the only difference being that the statement is reversed. It is these differences that allow some managers to generate these dividends.

“This unique fund uses a covered call strategy to achieve returns”Purpose points to his fund. “Taking advantage of the volatility available in Bitcoin, providing investors with a different risk and return profile to complement their portfolio of digital products.”

Canadian manager Purpose Investments shows how dividends are generated from its Bitcoin ETF.  Source: Reproduction.
Canadian manager Purpose Investments shows how dividends are generated from its Bitcoin ETF. Source: Reproduction.

According to the Canadian manager’s website, the return is 11.9% per year. However, it’s worth noting that the ETF is small compared to ETFs recently launched in the US, with just C$80 million in assets under management.

The Canadian manager also applies this strategy to Ethereum ETFs, a product that has not yet been approved on the US market. A more detailed explanation, which also presents the risks of this strategy, can be found on the Purpose website.

Finally, the entry of the traditional market into Bitcoin could generate new opportunities for investors. Although it is still early days, some executives like Anthony Scaramucci believe it is only a matter of time before we see overwhelming demand for Bitcoin from these players.

Source: Live Coins