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3 Best Bitcoin ETFs for Passive Income

Barchart - Sat Feb 24, 9:30AM CST

After a long, punishing decline from the 2021 highs, cryptocurrency investors have woken up to a pleasant surprise. In the last 15 months, Bitcoin (BTCUSD) prices have roughly tripled, while Ethereum (ETHUSD) has risen more than 100%. The Bitcoin bull run has finally resumed, with prices driven by tailwinds such as the launch of multiple spot Bitcoin exchange-traded funds (ETFs), as well as the upcoming BTC halving event.

While investing in cryptocurrency can be quite rewarding, investors should understand that it is also extremely risky. There are more than 20,000 cryptocurrencies in circulation, and just a handful of them may deliver outsized gains to investors in the upcoming decade. Moreover, you should also be ready for drawdowns of more than 80% at regular intervals. 

While several spot Bitcoin ETFs were launched last month, a range of futures-backed ETFs have been available since late 2021. Moreover, some of these crypto-backed ETFs pay investors a dividend, too, making them worthy of consideration for those looking to create a passive income stream.

Bitcoin and Passive Income 

Like spot BTC funds, Bitcoin futures ETFs aim to track BTC prices as closely as possible. However, holding Bitcoin futures contracts is not the same as holding BTC in a spot ETF, given that futures contracts have an expiration date. As the contract approaches its expiry date, it has to be settled - either via cash or delivery of BTC.

When the contracts are close to expiry, the funds roll them over to a later date. So, if BTC prices are rising and the contracts are rolled over, the funds book a profit. The funds have the option to distribute the profits to shareholders or pay taxes. 

As a result, many Bitcoin futures funds are now distributing profits to shareholders via dividends, resulting in higher yields. 

It's evident that the dividend will be distributed as long as BTC prices are on the rise. So, investing into these funds is based on the assumption that you expect BTC prices to keep moving higher. 

With this in mind, here are three Bitcoin ETFs you can buy for passive income. 

1. ProShares Bitcoin Strategy ETF (BITO)

With $2.16 billion in assets under management, the ProShares Bitcoin Strategy ETF (BITO) offers a yield of more than 13%, given its annual dividend payout of $3.31. With an expense ratio of 0.95%, the BTC ETF is not too expensive. 

With a mix of near-term BTC futures as its underlying, BITO is up 62% in the last 52 weeks. After adjusting for dividends, total returns are closer to 96.7%.

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2. Simplify Bitcoin Strategy PLUS Income ETF (MAXI)

With $1.1 billion in assets under management, the Simplify Bitcoin Strategy PLUS Income ETF (MAXI) offers a yield of 24.89%, given its annual dividend rate of $5.83. It has an expense ratio of 0.97%, which is a bit expensive. 

Along with providing exposure to BTC futures, MAXI generates additional income by selling short-dated put and/or call spreads against a variety of other assets. 

In the last year, the ETF has risen 53.6%. After adjusting for dividends, total returns are closer to 102.9%.

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3. Valkyrie Bitcoin and Ether Strategy ETF (BTF)

The final ETF on the list is the Valkyrie Bitcoin and Ether Strategy ETF (BTF), which manages more than $43.9 million in total assets. The ETF paid shareholders a dividend of $2.14 per share in the past year, indicating a forward yield of 12.6%.

BTF offers exposure not just to short-term BTC futures, but also to short-term Ethereum futures. In the last 12 months, the ETF has returned 75% to shareholders, or 104.7% after adjusting for dividends. 

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On the date of publication, Aditya Raghunath did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.

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