Staking is one of the most integral features of many of the largest blockchains in the world. Ethereum and Solana, both proof-of-stake networks, leverage it to secure their networks.
Bitcoin, the first blockchain, is based on a proof-of-work and has no native staking, yet BlackRock, on June 16th, launched a Bitcoin yield ETF, which targets a 15-25% annualized yield on its holdings.
The strategy for generating this yield is a classic TradFi strategy: writing call options against the fund’s holdings.
Watch the full interview on Roundtable!
Richard Shorten, chairman of staking platform GlobalStake, joined TheStreet Roundtable to break down this new ETF and what questions investors should be asking about it.
Related: Explained: What is crypto staking?
Where the yield comes from
Shorten explained that BITA “generates the yield by essentially holding the Bitcoin assets and then writing covered calls on the assets. It’s a very TradFi type strategy.”
A covered call sells someone the right to buy your asset at a set price on a future date in exchange for a premium paid to the seller. The premium is pocketed, but this caps your upside at whatever price you sell the call for.
This trade off suits assets like Bitcoin well, as it gives investors some protection against the volatility crypto is known for.
You’re sacrificing some of the upside in order to do that. But for very volatile assets such as Bitcoin, that creates unique opportunities to participate in both growth and income,” Shorten said.
Shorten sits on the board of an ETF issuer that runs this same strategy on traditional equities.
Watch the full interview on Roundtable!
The validation argument
Shorten expressed his excitement for this product, arguing that it validates these kinds of products in the eyes of non-crypto native investors.
“If you are looking for validation that digital assets are a real investable thing, there’s no better place to look than the proliferation of these products from very large issuers like BlackRock,” he said.
It also demonstrates that generating income on digital assets is now a demanded feature, not just a ‘nice to have.’ The world’s largest asset manager does not issue products lightly, as Shorten noted.
“Any product that they introduce is by definition something that is substantial, otherwise they’re not gonna put the institutional energy behind it.”
