Crypto asset manager Grayscale Investments filed for a new Bitcoin-related exchange-traded fund (ETF) last week shortly after its Grayscale Bitcoin Trust (GBTC) was successfully converted into a spot ETF. If approved, the new covered-call fund would offer investors a way to earn money from options on GBTC. 

According to the Jan. 11 filing with the U.S. Securities and Exchange Commission, the Grayscale Bitcoin Trust Covered Call ETF “seeks to provide and deliver current income while also providing participation in the price return of Grayscale Bitcoin Trust.” The strategy involves options contracts, which allow an owner of an asset to sell an option, and doing so gives the buyer the right to purchase the asset at a predetermined price within a certain time frame. The underlying asset in this fund is GBTC. 

While the fund will own some GBTC shares, it will also achieve its exposure through a combination of buying call options (which benefit from price increases) and selling put options (which offer some downside protection). The strategy allows the fund to benefit from both potential gains and losses in GBTC’s price.

Reuters first reported that Grayscale planned to file for the covered-call trust. 

Grayscale’s Role in the Spot Bitcoin ETFs

In June 2022, the SEC denied Grayscale’s application to convert its Grayscale Bitcoin Trust from an over-the-counter traded Bitcoin fund into a spot ETF, which tracks the price of Bitcoin by actually owning the asset. Grayscale took the SEC to court. Last August, a federal judge ruled that the SEC didn’t provide sufficient evidence for its denial and needed to review the application again. The decision was widely seen as forcing the SEC’s hand to approve spot Bitcoin ETFs, which it did on Jan. 10. 

Eleven spot bitcoin ETFs began trading in the U.S. on Jan. 11 (though Grayscale’s and one other had previously been trading in other forms), and saw $4.6 billion in trading volume on the first day. 

“The volumes we saw on the first day are going to coax issuers into being more bullish on the complex and doing more things,” said Steven Lubka, head of private clients and family offices at Bitcoin financial services firm Swan Bitcoin, during a call with Unchained on Friday, mentioning the Grayscale filing as one of those new ideas.

Similarly, Bloomberg Intelligence ETF analyst Eric Balchunas predicted on a recent episode of the Unchained podcast that “if these flows and asset numbers are as big as you expect, it will attract all sorts of sequels and deviations around spot Bitcoin.”

The nine funds that were brand new had combined inflows of over $1.4 billion in the first two days, according to Balchunas on X. GBTC, which had more than $28 billion in assets under management, experienced $579 million in outflows.

UPDATE (Jan. 16 3:20 p.m. ET): Added comments and tweet from Eric Balchunas.