Rich Habits Podcast Episode 92: How to Unlock Bitcoin's 27% "Dividend Yield"

Release Date: November 25, 2024

In Episode 92 of the Rich Habits Podcast, hosts Austin Hankiewicz and Robert Croak delve into the innovative world of cryptocurrency investment, focusing on NEOS Investments' latest offering: the Bitcoin High Income ETF (BTCI). Joined by NEOS Managing Partners Troy and Garrett, the discussion unpacks the strategies behind BTCI, its impressive yield, and its role in a diversified investment portfolio.

1. Introduction to NEOS Investments and Their ETF Suite

Robert Croak introduces the episode by welcoming Troy and Garrett from NEOS Investments, highlighting their expertise in creating income-focused Exchange-Traded Funds (ETFs). NEOS Investments is renowned for its quantitative methodologies aimed at enhancing yield and mitigating risk across various asset classes.

[00:48] Robert Croak: "We're thrilled to welcome Troy and Garrett, the managing partners of NEOS Investments... to discuss their newest ETF, the NEOs Bitcoin High Income ETF BTCI."

Garrett provides an overview of NEOS Investments, emphasizing their commitment to offering tax-efficient, income-enhanced investment solutions that complement traditional portfolio allocations like equities and fixed income.

[01:59] Garrett: "We focus on quantitative methodologies to creating yield enhanced or risk mitigated investment solutions... NEOS today has a lineup of eight products... including SPY, QQQI, and our newest BTCI."

Key Points:

• Array of ETFs: NEOS offers ETFs across major indices (S&P 500, NASDAQ 100, Russell 2000) and fixed income, each designed to generate tax-efficient income.
• Tax Efficiency and Income Generation: NEOS ETFs aim to provide consistent monthly income while maintaining diversification and reducing volatility.

2. Deep Dive into BTCI: The Bitcoin High Income ETF

Austin Hankiewicz expresses enthusiasm about NEOS's Bitcoin ETF, revealing his significant personal investment in NEOS products.

[04:04] Austin Hankiewicz: "I've got over $120,000 of my hard-earned money invested into SPYI and QQQI... it's exciting to see that complement the rest of my portfolio."

Troy elaborates on the mechanics of BTCI, explaining its dual strategy of holding long Bitcoin positions while employing option strategies to generate income. This approach allows investors to benefit from Bitcoin's price appreciation and receive substantial monthly distributions.

[04:29] Troy: "Our Bitcoin high income ETF leverages an option strategy while holding underlying long Bitcoin exposures... we just had a distribution... just over 2.3%, which annualizes to over 27%."

Notable Quote:

[04:29] Troy: "The fund went X today, it distributed just over 2.3%. So figure an annualized yield of over 27%."

Key Points:

• High Yield: BTCI offers an annualized yield exceeding 27%, significantly higher than traditional Bitcoin investments.
• Upside Participation: Investors can benefit from Bitcoin’s price gains, as BTCI holds long positions.
• Risk Mitigation: By selling deep out-of-the-money call options, NEOS ensures income generation while allowing for substantial upside participation.

3. Cryptocurrency's Institutional Adoption and Wall Street's Embrace

Robert Croak, a seasoned investor in cryptocurrencies, shares his perspective on the growing institutional adoption of Bitcoin and its impact on products like BTCI.

[06:37] Robert Croak: "... it's been incredible to see the institutional adoption of Bitcoin and cryptocurrencies as a whole."

Garrett discusses the regulatory advancements that have paved the way for Bitcoin ETFs, noting the SEC's approval of spot Bitcoin ETPs earlier in the year. This regulatory acceptance has facilitated the creation of diverse financial products, including BTCI.

[07:19] Garrett: "Once the SEC got comfortable with safeguarding investor assets within crypto, we saw the opening and adoption for ETFs... we’re an asset manager overlaying our expertise to create these products."

Robert underscores the importance of institutional validation, stating that when major firms like BlackRock endorse these products, it reinforces their legitimacy and safety.

[09:01] Robert Croak: "When BlackRock says the water is safe, then I think the water is pretty safe."

Key Points:

• Regulatory Milestones: SEC approvals have been crucial in legitimizing Bitcoin ETFs.
• Institutional Trust: Endorsements from major financial institutions have boosted investor confidence.
• Future Outlook: Positive regulatory changes and institutional interest are expected to further expand cryptocurrency investment products.

4. BTCI in a Diversified Portfolio

Austin Hankiewicz discusses the strategic placement of BTCI within a diversified portfolio, highlighting its ability to provide stable income alongside traditional assets.

[12:18] Austin Hankiewicz: "As someone who owns SPYI... having BTCI rounds out the edges of having some crypto exposure with tax-efficient high income on a monthly basis."

Troy emphasizes that BTCI is designed for investors who seek income generation without the complexities of managing direct Bitcoin holdings.

[11:46] Troy: "It's for anyone looking for exposure to the space... they want to earn income while holding the product without managing a cold wallet."

Key Points:

• Income Supplement: BTCI provides consistent monthly income, which can offset market volatility.
• Simplified Crypto Exposure: Investors gain Bitcoin exposure without the need for cold wallets or direct management.
• Portfolio Enhancement: BTCI complements traditional ETFs by adding a high-yield, alternative asset class.

5. Managing Cryptocurrency Volatility with BTCI

Robert Croak raises concerns about Bitcoin's inherent volatility and questions whether ETFs like BTCI could stabilize the market.

[13:27] Robert Croak: "Do you think with the emergence of all these crypto ETFs that will cool off the volatility and the retracements in the coming years?"

Garrett responds affirmatively, suggesting that increased institutional participation and diversified investment products will help mitigate extreme price fluctuations.

[14:08] Garrett: "As more buyers enter the market through financial products, Bitcoin's volatility is likely to decrease, leading to more stable investment environments."

Austin highlights the importance of BTCI in providing both income and exposure during different market cycles.

[16:49] Troy: "With BTCI, you can earn income during sideways movements and still participate in upward trends, balancing volatility with income generation."

Key Points:

• Reduced Volatility: Institutional involvement and diversified ETFs are expected to stabilize Bitcoin prices.
• Balanced Exposure: BTCI allows investors to benefit from Bitcoin’s growth while earning income during stagnant periods.
• Strategic Flexibility: Investors can maintain exposure to Bitcoin’s potential upside without being solely reliant on price appreciation.

6. Q&A Highlights and Practical Investment Advice

The latter part of the episode features a Q&A session where Austin and Robert address listener questions, offering practical investment strategies and insights.

Dividend ETFs for Retirement: A listener, Philip B., inquires about suitable dividend ETFs for a near-retirement portfolio.

[31:00] Robert Croak: "SPY and QQQI are incredible income-focused ETFs... they provide passive income that supplements price fluctuations."

Response: Austin and Robert recommend NEOS ETFs like SPYI and QQQI for their consistent monthly income and tax efficiency, alongside traditional dividend growth ETFs like DGRO and SCHD from iShares.

Defining a Market Dip: Listener Daniel F. asks about identifying a "dip" in the market.

[36:34] Austin Hankiewicz: "For indices like the S&P 500, a 15% pullback is a correction. For individual stocks like Nvidia, a 15% dip might just be another day in the markets."

Response: Robert and Austin suggest that what constitutes a dip varies by asset class and individual stock volatility, advocating for tailored strategies based on the investment's nature and sector.

Maximizing HSA vs. Roth IRA: Nico seeks advice on prioritizing contributions between an HSA and a Roth IRA.

[39:04] Robert Croak: "Unless there's a specific health-related need, maxing out the Roth IRA is advisable for long-term, tax-free retirement benefits."

Response: The hosts emphasize the Roth IRA's advantages for long-term growth and tax benefits, advising Nico to prioritize it unless anticipating significant medical expenses.

7. Concluding Thoughts and Future Outlook

As the episode wraps up, the hosts and guests share their optimism for NEOS Investments and the broader cryptocurrency market.

[34:58] Austin Hankiewicz: "We're excited about the new strategies and products for 2025... NEOS is a rocket ship."

Garrett discusses NEOS's plans for 2025, including the launch of new ETFs such as a 20+ year high-income ETF and a real estate high-income ETF, all maintaining the firm's commitment to income generation and tax efficiency.

[21:40] Troy: "We're focused on expanding thoughtfully, ensuring each new product fits our expertise in income-producing, monthly distribution ETFs."

Robert Croak reinforces the podcast's mission to educate and empower listeners by sharing real investment strategies and successes.

[26:55] Robert Croak: "We share our wins and strategies, helping everyone take actionable steps toward financial freedom."

Takeaways

• BTCI's Unique Proposition: NEOS Investments' BTCI offers a compelling combination of high yield (over 27% annualized) and Bitcoin exposure, making it an attractive option for income-seeking investors interested in cryptocurrency.

• Institutional Support Reduces Volatility: Increased institutional adoption and regulatory approvals are poised to stabilize Bitcoin markets, enhancing the appeal of crypto-based ETFs.

• Diversification and Income: Incorporating BTCI alongside traditional and dividend-focused ETFs can provide a balanced, income-generating, and diversified investment portfolio.

• Educational Commitment: The Rich Habits Podcast continues to serve as a vital resource for investors of all levels, offering actionable insights and fostering financial literacy.

Notable Quotes:

• Troy on BTCI's Yield:

  "[04:29] ... figure an annualized yield of over 27%."

• Robert on Institutional Trust:

  "[09:01] When BlackRock says the water is safe, then I think the water is pretty safe."

• Austin on Risk Management:

  "[19:38] ... having BTCI rounds out the edges of having some crypto exposure with tax-efficient high income on a monthly basis."

For more information on NEOS Investments and their Bitcoin High Income ETF, visit neosfunds.com/BTCI.

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