Cryptocurrencies have become a popular asset class among retail investors speculating on the next big thing. But unlike stocks and bonds, they don’t generate any dividends or interest income on debt. As a result, most financial experts recommend them as an alternative asset to diversify returns or as a gold-like hedge.
Simplify Asset Management recently launched the Simplify Bitcoin Strategy PLUS Income ETF (MAXI) as an alternative to conventional cryptocurrency holdings that generates an active income.
See our Active ETFs Channel to learn more about this investment vehicle and its suitability for your portfolio.
Simplify’s Bitcoin Strategy ETF
MAXI provides investors with exposure to Bitcoin and the potential to generate income by selling short-dated put or call spreads on the most liquid global equity indices. Or, looked at another way, the fund provides Bitcoin exposure with a downside buffer in the form of extra income.
“Whatever directional call an investor might want to make on Bitcoin, MAXI can play a key role, as the fund’s income component can help add to returns on the upside while also acting as a downside hedge by virtue of ‘padding’ such income may deliver during potential drawdowns for Bitcoin,” said Paul Kim, CEO & Co-Founder of Simplify.
Under the hood, the fund targets 100% exposure to Bitcoin by investing in the front-month CME futures contract. Then, the managers leverage a sophisticated option-writing algorithm to dynamically select option types, underliers, and strikes to generate attractive risk-adjusted returns. And finally, the second level of risk control seeks to mitigate any tail risks.
With a 0.97% gross expense ratio, the fund offers capital-efficient exposure to Bitcoin for both capital and income investors.
The SEC Remains a Skeptic of Bitcoin
MAXI’s launch comes roughly one year after the launch of the first U.S. Bitcoin ETF, the ProShares Bitcoin Strategy ETF (BITO). Like MAXI, BITO doesn’t own any physical Bitcoin and instead uses futures contracts. That way, the funds don’t have to deal with messy custodial issues.
In June 2022, the SEC denied a request from Grayscale Investments to convert its Bitcoin Trust (GBTC) into an ETF along with Bitwise Asset Management’s application for a spot Bitcoin ETF. While Grayscale filed a lawsuit against the SEC, it appears that the regulatory agency will continue to deny spot Bitcoin ETFs for the time being.
In the meantime, Simplify also launched its Simplify US Equity PLUS GBTC ETF (SPBC) to provide investors with spot exposure to Bitcoin via GBTC along with 100% investment in the broader U.S. equity markets. As a result, investors can purchase a broad market portfolio with 10% Bitcoin exposure in a single ETF.
The Bottom Line
Investors holding physical cryptocurrencies can generate income from their holdings via decentralized finance (DeFi) protocols. For example, MakerDAO and Compound enable anyone to lend their crypto holdings to others and create an income. The entire process operates without credit by enforcing collateral and liquidation rules.
Unfortunately, the process can be complicated for those new to cryptocurrencies, and the DeFi space is known for its high-profile security and theft incidents. The good news is that MAXI can provide a similar combination of Bitcoin exposure and income through a more familiar ETF vehicle.
Take a look at our recently launched Model Portfolios to see how you can rebalance your portfolio.
