Would you buy a crypto ETF that paid out a monthly dividend? Because they exist!

First, let's start with that is an ETF: An ETF is an Exchange Traded Fund, it is made of different securities (stocks, commodities, or bonds). Investors in turn can buy into the fund by holding a share which gives them exposure to a wide range of market conditions. These ETFs can be high or low-risk.

So how does a BTC/ETH ETF work? Purpose Bitcoin ETF (TSX:BTCC.B) holds 24632.44568 BTC in total. Each unit of the fund represents 0.0001313 BTC.

While these are your basic-level BTC/ETH related ETFs, you can also find derivative-based ETFs. That means that the fund uses derivatives of the asset to generate yield.

What does that really mean? The team behind Purpose derivate ETFs basically uses covered call options.

This is a strategy with limited risk since the investor owns the shares of the underlying stock. Traders can buy these call options to increase gains. It is a great plan if the price of Bitcoin or Ethereum is going up.

However, traders must pay the fixed fee regardless of what happens to the underlying price of these assets. This means the strategy is a way for the ETF to generate safe, reliable, and passive returns on an otherwise volatile asset.

Purpose Investments believes it can generate annual yields of 8-10% with this strategy. This yield offsets the losses if the cryptocurrency market falls but also offsets some gains when the market rises.

In other words, these dividend-paying crypto ETFs are most appropriate for investors who want less volatility and safer returns from the digital assets sector.

So here’s an example of how much you would currently have if you invested $1000 USD in BITO at the start of this year (January 3rd, 2023).

January 3rd 2023: 1 BITO share = $10.49 USD $1000/10.49= ~95 shares

Current value (September 22nd, 2023): $13.62 USD 95 shares = $1293.9 USD Profit of $293.9 USD or about 29.39%

But the ETF also pays monthly dividends, the annual dividend for this year so far is $2.61 USD.

Dividend value = 95 x 2.61 $246.95 USD

So if you had invested $1000 in BITO (a BTC ETF that pays a dividend) at the start of this year, you would have a current value of $1293.9 (in shares) and $247.95 in cash.

The beauty of all of this is that since this is a TradFi offering if you live in a country that gives you access to an account where you aren’t taxed on capital gains (US/IRA & Canada/TFSA) you can be reaping the upside of not only BTC but also a juicy dividend.

So would you invest in a BTC/ETH ETF that paid out dividends? Or would you rather buy with fiat and HODL your coins.

SOURCE