BITO vs. BTCI: Why the 78% Yield is a Structural Risk for Income Investors

In the rapidly evolving world of crypto ETFs, investors are increasingly drawn to high-yield products like the ProShares Bitcoin Strategy ETF (BITO) and the NEOS Bitcoin High Income ETF (BTCI). While BITO's staggering 78.68% dividend yield appears enticing at first glance, a closer look reveals structural vulnerabilities that make it a precarious bet for income-focused investors. Meanwhile, BTCI's active, diversified strategy offers a more sustainable path to generating returns, balancing yield with downside protection. This analysis unpacks why structural sustainability-and not just headline yields-should be the cornerstone of any crypto income strategy.

The Illusion of BITO's Yield

BITO's astronomical yield is not a reflection of Bitcoin's intrinsic value but a byproduct of its futures-based structure. The fund tracks Bitcoin futures contracts, which require periodic rolling from expiring contracts to newer ones. In a market characterized by contango-where future prices trade above spot prices-this rolling process incurs significant costs. These costs erode returns, especially in prolonged bull markets where contango is common. For example, during Bitcoin's 2024 rally, BITO's tracking discrepancies widened as the fund's futures roll costs outpaced gains in the underlying asset.

Moreover, BITO's yield is inversely correlated with Bitcoin's price action. When Bitcoin plunges, the fund's structural inefficiencies amplify losses. Historical data shows BITO suffered a maximum drawdown of -77.86% in 2025, compared to BTCI's -29.28%. This stark contrast underscores BITO's vulnerability to market downturns, where its yield becomes a double-edged sword: high returns during rallies are swiftly reversed during corrections.

BTCI's Active Strategy: A More Sustainable Model

BTCI, by contrast, employs an actively managed approach that mitigates structural risks while generating consistent income. The fund writes covered call options on Bitcoin futures ETFs, capturing premiums that translate into monthly distributions. As of late 2025, BTCI had delivered a 58% total return since inception and maintained a 26.73% distribution rate, with 94% of its most recent payout classified as a return of capital. This strategy leverages Bitcoin's volatility to generate income without relying on the fragile mechanics of futures rolls.

The fund's active management also provides downside protection. By capping upside potential in exchange for premium income, BTCI reduces exposure to sharp price swings. While this means it won't outperform Bitcoin in all conditions, it ensures more predictable returns for income investors. For instance, BTCI's maximum drawdown of -29.28% in 2025 highlights its resilience during market stress, a critical advantage for risk-averse portfolios.

Risk-Adjusted Returns: The Hidden Metric

When evaluating crypto ETFs, investors must prioritize risk-adjusted returns over raw yield figures. BITO's 78.68% yield comes with a 0.95% expense ratio and structural risks that amplify volatility. In contrast, BTCI's 0.98% expense ratio supports a diversified strategy that balances income generation with capital preservation as reported by ETF Trends. The two funds are highly correlated (0.99), meaning they move in lockstep, but BTCI's lower volatility and active risk management make it a superior choice for long-term income sustainability according to Portfolio Lab analysis.

A key differentiator is BTCI's ability to adapt to market conditions. While BITO's returns are tethered to Bitcoin's price and futures costs, BTCI's options strategy allows it to thrive in both bullish and bearish environments. This adaptability is reflected in its outperformance over traditional Bitcoin ETFs like IBIT, particularly in 2025 as noted in a recent podcast.

Conclusion: Sustainability Over Spectacle

For income investors, the allure of BITO's 78% yield is a red flag. Structural risks like contango and tracking errors make it a high-risk, high-reward proposition that can quickly unravel during market downturns. BTCI, with its active, diversified approach, offers a more sustainable model that prioritizes long-term stability over short-term spectacle. While neither fund is without flaws, BTCI's disciplined strategy and risk mitigation make it a better fit for investors seeking reliable income in the volatile crypto space.

In an era where crypto markets remain unpredictable, structural sustainability should trump headline yields. The lesson from 2025 is clear: high returns without structural integrity are a house of cards waiting to collapse.