Grayscale unveils updated covered call ETFs for Bitcoin and Ethereum

Grayscale's income strategy aims to provide stable returns through option contracts linked to Bitcoin and Ethereum.

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Grayscale Investments has updated proposals for its Bitcoin and Ethereum Covered Call ETFs, according to Nov. 18 filings with the US Securities and Exchange Commission (SEC).

The funds aim to generate income through options contracts linked to the firm’s Bitcoin and Ethereum exchange-traded products (ETPs), including the Grayscale Bitcoin Trust (GBTC), its mini Bitcoin trust, the Grayscale Ethereum Trust (ETH), and its mini Ethereum trust.

The Bitcoin filing stated:

“Under normal circumstances, the Fund will invest at least 80% of its net assets (including investment borrowings) in Bitcoin ETPs, options contracts that utilize a Bitcoin ETP as the reference asset, and other instruments that have economic characteristics and provide investment exposure similar to such investments.”

The same language was employed in the Ethereum filing.

Unlike traditional crypto funds, these ETFs will not directly hold Bitcoin or Ethereum. Instead, they will rely on exchange-traded instruments and derivatives designed to track digital asset prices. This structure may lead to performance differences compared to the actual prices of Bitcoin and Ethereum.

The filings did not disclose the funds’ ticker symbols or fee structures.

Covered call ETFs use a popular income-focused strategy. They generate revenue by selling call options on underlying assets, which provides steady income through premiums. This approach also offers some downside protection during market declines. However, it limits gains, as the underlying assets are sold at a preset price if options are exercised.

These ETFs are particularly appealing to income-oriented investors seeking higher returns than traditional ETFs, though they may underperform in highly bullish markets.

Grayscale crypto products

Grayscale’s timing reflects its history of pushing boundaries in crypto ETFs. The firm played a pivotal role in the eventual launch of crypto-related spot crypto ETFs for Bitcoin and Ethereum.

Since their launch, spot Bitcoin ETFs have achieved rapid growth, attracting significant inflows and becoming one of the fastest-growing segments in the US ETF market.

Meanwhile, Grayscale is also working to transition its Digital Large Cap Fund (GDLC), which holds assets like Bitcoin, Ethereum, and XRP, into an ETF.

Additionally, it has introduced several trusts for other digital assets, including XRP, Sui, MakerDAO, Avalanche, and Aave, showcasing its ongoing efforts to expand crypto investment opportunities.

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