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Grayscale Updates Bitcoin and Ethereum Covered Call ETF Proposals

Barbara Streisand
Barbara StreisandOriginal
2024-11-20 06:18:20476browse

Grayscale Investments has updated proposals for its Bitcoin and Ethereum Covered Call ETFs, according to Nov. 18 filings with the US Securities and Exchange Commission (SEC).

Grayscale Updates Bitcoin and Ethereum Covered Call ETF Proposals

Grayscale has updated its proposals for Bitcoin and Ethereum covered call exchange-traded funds (ETFs) in filings with the U.S. Securities and Exchange Commission (SEC) on Friday.

The funds will aim to generate income through options contracts linked to Grayscale's Bitcoin and Ethereum exchange-traded products (ETPs), including the Grayscale Bitcoin Trust (NASDAQ:OTC:GBTC), its mini Bitcoin trust, the Grayscale Ethereum Trust (NASDAQ:ETH) and its mini Ethereum trust.

“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 Bitcoin filing said.

The same language was used in the Ethereum filing.

Unlike traditional crypto funds, these ETFs will not directly hold Bitcoin or Ethereum. Instead, they will rely on exchange-traded instruments and derivatives designed to track digital asset prices. This structure may lead to performance differences compared to the actual prices of Bitcoin and Ethereum.

The filings did not disclose the funds' ticker symbols or fee structures.

Covered call ETFs are a popular income-focused strategy that generates revenue by selling call options on the underlying assets, providing steady income through premiums. This approach also offers some downside protection during market declines, although it limits gains as the underlying assets are sold at a preset price if options are exercised.

These ETFs are particularly appealing to income-oriented investors who may be willing to sacrifice some upside in highly bullish markets for the potential for higher returns compared to traditional ETFs.

Grayscale's timing reflects its history of pushing boundaries in crypto ETFs. The firm played a pivotal role in the eventual launch of crypto-related spot crypto ETFs for Bitcoin and Ethereum.

Since their launch, spot Bitcoin ETFs have achieved rapid growth, attracting significant inflows and becoming one of the fastest-growing segments in the US ETF market.

Meanwhile, Grayscale is also working to convert its Digital Large Cap Fund (NYSE:GDLC), which holds assets like Bitcoin, Ethereum and XRP, into an ETF.

Additionally, it has introduced several trusts for other digital assets, including XRP, Sui, MakerDAO, Avalanche and Aave, showcasing its ongoing efforts to expand crypto investment opportunities.

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