Grayscale revised its Bitcoin and Ethereum Covered Call ETF proposals, per SEC filings on Nov. 18. The ETFs will generate income via options tied to Grayscale’s Bitcoin and Ethereum trusts.
According to filings with the US Securities and Exchange Commission (SEC) on November 18, Grayscale Investments has revised its proposals for its Bitcoin and Ethereum Covered Call ETFs.
Options contracts associated with the firm’s Bitcoin and Ethereum exchange-traded products (ETPs), such as the Grayscale Bitcoin Trust (GBTC), its mini Bitcoin trust, the Grayscale Ethereum Trust (ETH), and its mini Ethereum trust, are the strategies employed by the funds to generate income.
The Bitcoin filing indicated that:
“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 Ethereum filing utilized the same terminology.
In contrast to conventional crypto funds, these exchange-traded funds (ETFs) will not directly possess Bitcoin or Ethereum. Rather, they will depend on exchange-traded instruments and derivatives that are specifically designed to monitor the prices of digital assets. This structure may result in performance disparities with respect to the actual prices of Bitcoin and Ethereum.
The ticker symbols and fee structures of the funds were not disclosed in the filings.
Popular income-oriented strategies are implemented by covered call exchange-traded funds (ETFs). They generate revenue by selling call options on underlying assets, which generates consistent income through premiums. Additionally, this method provides some protection against market declines. Nevertheless, it restricts profits by requiring the underlying assets to be sold at a predetermined price in the event that options are exercised.
These ETFs are particularly appealing to income-oriented investors who are pursuing higher returns than traditional ETFs, despite the potential for them to underperform in highly bullish markets.
Grayscale’s scheduling is indicative of its history of challenging the boundaries of crypto ETFs. The organization was instrumental in the eventual introduction of spot crypto ETFs for Bitcoin and Ethereum that were related to the crypto industry.
Spot Bitcoin ETFs have been one of the fastest-growing segments in the US ETF market, attracting significant inflows and achieving rapid growth since their inception.
In the interim, Grayscale is also in the process of converting its Digital Large Cap Fund (GDLC), which is comprised of assets such as Bitcoin, Ethereum, and XRP, into an ETF.
Furthermore, it has implemented numerous trusts for other digital assets, such as XRP, Sui, MakerDAO, Avalanche, and Aave, as evidence of its ongoing endeavors to broaden the scope of crypto investment opportunities.