BTCI: Buy the Bitcoin Dip?

Added: 2026-05-18

[00:00:00]The past year for Bitcoin has been bad and the past month has been great. That got me thinking, maybe now is the time to add more Bitcoin monthly income. And also, is BTCI still the best way to do that?

[00:00:17]>> When I bought BDCI, it was yielding about 26%, it still pays that, but on a lower share price. On my cost, the yield has fallen to about 17%. Still pretty high. As long as it continues to pay at least 8% annually, I plan to hold it long term. By the way, if you're new to the channel, I retired in 2017, and that's when I got serious about researching my investments in greater depth. And this channel is where I share what I learn. I mostly focus on stocks and funds paying consistent yields of 8 to 12%. And if you'd like a copy of my portfolio, it's available via Armchair Insider, link in the description. It's free. Let's start with the income. Most NEOS funds pay fairly consistent distributions. For example, here's one that I hold SPY.

[00:00:59]However, Bitcoin is far more volatile than the S&P 500. So, the distributions for BTCI do vary considerably. There have been many ups and downs, but in broad terms, since BTCI was launched in October 2024, the income has followed the price trend of Bitcoin, which was two peaks and then a large correction.

[00:01:21]As with any covered call fund, the income is a function of the value of the underlying asset. In this case, the underlying asset is Bitcoin. This distribution chart came from Snowball, but I mostly use Snowball to keep track of my current and future income from three brokerages combined into one dashboard. I can visually rank my portfolio by current yield and know exactly when the next dollar will land in my account right down to the day.

[00:01:44]There's a link in the description for a free trial and a discount. The most recent distribution for BTCI was a whisker under 80s. I mentioned earlier that my yield on cost is currently about 17% but I didn't buy BTCI when it first came out. The initial price was around $50. Then it dipped down briefly into the high 40s. So let's say you bought BTCI at launch and you paid 50 bucks.

[00:02:10]The current distribution would equate to a yield on your cost of just over 19%.

[00:02:16]Not as good as the yield on today's price, but still a very high yield. and glass half full. If you buy BTCI at a 26% yield and Bitcoin takes off again, your yield on cost can go higher than 26% as the distributions increase. Now, the problem is that the price of BTCI has fallen down below $40. It's hard to get a handle on performance while thinking about a high yield and a price correction at the same time. The solution is to measure with one metric, total return. Combining price gains or losses with dividends reinvested gives us one number that we can use to compare different investments with different yields. Let's start with BTCI, which typically pays a yield of just over 25% of its current price and compare that to the underlying asset, Bitcoin, which of course doesn't pay any yield. Covered call core funds generate income in the form of call option premiums in exchange for giving up some of the potential future upside of the underlying asset.

[00:03:17]So let's see how much of the potential upside BTCI gave up compared to Bitcoin.

[00:03:24]Since BTCI's inception more than a year and a half ago, the gap is actually less than 1% which is smaller than I expected for such a wildly volatile asset. for this particular timeline. BTCI investors didn't really give up much upside by holding BTCI instead of Bitcoin, but that's because covered call funds do better during corrections because there's no upside to miss out on and they still continue to get the option income every month. The chart does show, however, that when Bitcoin was doing really well, it was surging ahead of BTCI. And for some context, here's the S&P 500 over that same timeline. It looks kind of boring by comparison. For most of that period, BTCI was easily outperforming the S&P 500. Then in early 2026, it fell behind. The central question of this episode is it better to buy BTCI up here when it's doing well or down here during a correction? Let's do a quick refresher on how BTCI generates income and then we'll look at the competition. Step one is to replicate the price of Bitcoin by trading options on a Bitcoin index NEOS using the CBOE Bitcoin US ETF index ticker CBTX. To do that, they sell CBTX puts and buy CBTX calls at the same strike price, same expiration. And the result is that the net value of those two options replicates the price action of Bitcoin.

[00:04:56]It's also known as a synthetic long. The income is created by selling out of the money call options on CBTX. Selling those options generates income today in exchange for giving up some of the potential appreciation of Bitcoin in the future. Specifically, as I record this, the CBTX Bitcoin index is in the high 1800s, and BTCI has sold call options at 1930 and 2010. That means BTCI will capture the upside on these call options up to 1930 and 2010. And whoever bought the call options from NEOS keeps any upside above those numbers. The treasuries act as collateral for the synthetic option strategy and they also contribute a little bit of yield. Then there's Bybit and Hodddle. They are spot bitcoin ETFs that hold Bitcoin in cold storage using a custodian like Coinbase or Gemini. Now they don't produce any income. They just track the price of Bitcoin. So roughly 24% of BTCI is free to rise and fall with the price of Bitcoin and the other 76% is used to generate income in exchange for giving up some of the potential upside. Just how much they give up, we'll see in a moment. Here's a comparison of BTCI to four other Bitcoin funds that have been around for at least as long as BTCI, and BTCI leads the pack. To make it clearer, I'll remove the bottom two and leave the top two competitors, BTO and YBTC. Now, we can see that YBTC trailed the whole time and BTO has been the only real competitor to BTCI so far. The bullish periods were better for BTO, especially around late 2024. And BTCI did better during bearish periods. Whereas BTCI sells call options, BTO relies on trading futures contracts. I personally prefer BTCI's option strategy because it produces more consistent income. BTO's distributions are way more volatile and recently they've fallen to almost zero which looks scary. As always, I turn to Seeking Alpha for answers to questions like this. This analysis from April 20th by Macro explains why Beto's use of futures contracts has caused the income to run dry. If you do hold BTO, I definitely recommend reading that article. I don't currently hold it. I'll link to that BTO analysis in the description, and I'll include a link to seeking Alpha for a free trial and the armchair income discount. I don't buy or sell any stocks or funds without first checking Seeking Alpha on my phone or on my laptop or desktop. In addition to the competitors that have been around for at least as long as BTCI, there are also some newer competitors. Baggy, Bitty, and BPI. I ran Total Return from the inception date of the youngest of those, which was Baggy or B A GY, which was launched on April 29th, 2025. BTCI is still slightly ahead. BTCI's fund manager, Neos launched a second Bitcoin fund, so that's worth a quick mention.

[00:08:09]XBCI is what they describe as boosted, which means they use options to create the equivalent of 1.5 times leverage. It was launched in February 2025, so it's still pretty new. As I record this, Bitcoin has been having a pretty strong month. So, XBCI is doing what you'd expect. It's pulling away from its BTCI sister fund. Obviously, in a down market, that 1.5 times exposure amplifies your losses. So, don't fall in love with that 38% annualized yield without accepting the increased downside risk. Operating expenses for BTCI are 0.98% which sounds pretty high, but Bitcoin income funds are more expensive to operate than spot funds. BTO is slightly cheaper at 0.95%.

[00:08:58]The yields and volatility are so high with these Bitcoin funds though that fractions of a percent in OPEX are not the deciding factor for me. The good news when it comes to tax though is that using index options creates opportunities for more tax efficient income in the form of return of capital.

[00:09:15]This is not a return of your invested funds. It's a tax treatment that's created by offsetting losses from option traders. It will vary considerably from year to year, but the historical numbers are available from 8937 tax documents.

[00:09:30]In late 2024, there was none. It was zero. Then it jumped into the 90s. I don't know why for sure, but my assumption is that when BTCI was launched, they didn't initially have access to tax efficient option indexes and then that changed. The 8937 form for the next financial period showed a lower number, but it was more consistent uh return of capital of around 44%ish.

[00:09:57]The advantage of return of capital is that it's not taxable until you sell and then it's taxed at the long-term capital gains rate instead of the ordinary income rate. However, it does lower your cost basis and if and when your cost basis eventually reaches zero, that would take quite a few years, then tax will be payable at the capital gains rate. My take is that Bitcoin is a wild roller coaster and I don't get too excited when it's riding high nor too disappointed when it's down low. I don't expect it to go up every year, but I do expect it to go up over the next 5 years. Regarding yield, I'm looking for 8 to 12% and I expect BTCI to deliver at least that on my investment indefinitely. Also, I don't want my income to be dependent on what the S&P 500 is doing. And obviously, Bitcoin offers some diversification. Putting it all together, BTCI is still my favorite Bitcoin income fund, and I'd rather buy it low than buy it high. If I add to the existing BTCI position that I have, I'll send out an update via Armchair Insider.

[00:11:00]That's the newsletter. And if you love income investing as much as I do, you can learn from other income investors who share the same passion. and we do that together in the armchair insider lounge and it's currently open to new members. To find videos of my favorite income investments, click here for reviews focused on my top 10 holdings.

[00:11:20]That wraps it up for this look at the BTCI Bitcoin income ETF. More armchair income coming soon.

[00:11:29]I'm sharing.