A recently launched crypto ETF in the U.S., which offers diversified exposure to digital assets along with options income, is gaining traction in a sign that investors are looking beyond traditional, single-spot-focused products.
The Nicholas Crypto Income ETF (BLOX), an actively managed ETF designed for diversified exposure to the digital assets ecosystem while generating additional income via options strategies, went live on the NYSE on June 17. The ETF is the latest addition to the XFUNDS by Nicholas Wealth suite.
Since then, the ETF has registered a net inflow of around $4.52 million, according to data source VettaFi. BLOX's website puts the total net assets at $4.9 million.
"The options income space is almost becoming its own asset class," David Nicholas, CEO of XFUNDs, told CoinDesk in an interview, adding that the fund is drawing interest from yield-hungry retail investors.
Three-sleeved product
The fund, launched in partnership with Tidal Investments LLC, comprises of an equity sleeve that invests in publicly listed shares of crypto-related firms and companies holding digital assets on their balance sheets.
The second sleeve of the fund offers exposure to select bitcoin and ether exchange-traded funds, with the flexibility to expand exposure to other digital assets through potential regulated vehicles.
As of Thursday, the fund's top 10 holdings included names such as BlackRock's spot Ethereum ETF, Coinbase, Nvidia, MARA, Core Scientific, and others. The unique mix of holdings ensures that the performance isn't entirely dependent on bitcoin's (BTC) price.
"We own about 11 businesses, and we have high conviction that they will benefit from Bitcoin or Ether appreciation, but they aren't crypto assets themselves. So, you gain exposure to both cryptocurrency and publicly traded companies with earnings and growth. We think that combination inside the fund is pretty unique," Nicholas said.
Finally, there is an options sleeve that generates income. The fund writes call/put spreads on the crypto sleeve while selectively writing covered calls or put spreads on its equity holdings.
Writing an option is akin to selling insurance against bullish or bearish price moves in return for an upfront premium, which represents the income of the writer (seller).
Writing put spreads against holdings allows the fund to collect premiums as the assets appreciate, providing additional income alongside the gains from the underlying holdings. BLOX trades options tied to the spot ETFs, including those linked to BlackRock's spot bitcoin ETF, IBIT.
For instance, shares in Coinbase, one of the ETF's top 10 holdings, rose over 14% in the last week of June. The fund's three-sleeved structure means it likely captured the full rally alongside income through put spreads. The same can be said with respect to Core Scientific, which recently rose 15%.
"That’s what’s great about put spreads—there’s no cap. A put spread is a long, bullish options position," Nicholas said. The income from options and dividends on stock holdings is distributed to subscribers every week.
Note that crypto holders have been writing put spreads and higher-strike calls on the offshore derivatives giant Deribit for some time. These yield-generation strategies are quite popular in the equity markets.
Open to altcoin inclusion
When asked about the growing interest in ETFs tied to major altcoins such as Solana's SOL (SOL), XRP (XRP) and others, Nicholas said they will accommodate the new ones as and when they become available.
"Once the SEC approves others—like Solana, which has a pending ETF—we can file an amendment and add them to our fund. So we wouldn’t need a new ETF. Since we see this as a broad crypto exposure fund, we’d just edit the existing structure to include new assets," Nicholas told CoinDesk.
Read more: Bitcoin DEX Traders Position for Downside Volatility With $85K-$106K Puts, Derive Data Show
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