Summary I rate BITO a BUY as the expected Fed rate-cut cycle and rising institutional adoption create a bullish outlook for Bitcoin. BITO with Bitcoin Futures offers an attractive income-focused alternative to spot Bitcoin ETFs, with ultra-high yield (e.g., 52%) and monthly distributions. BITO features a relatively lower volatility and active options for risk management, such as PUT protection and income enhancement. BITO is well-suited for investors seeking great total returns with exposure to Bitcoin's upside in 2025 and beyond, with flexibility to manage risk and income actively. Introduction The rate-cut cycle is bullish for Bitcoin. The Fed is very likely to cut the rate in September, and possibly more cuts are to come later in 2025 and 2026. The Fed could restart the rate cut cycle, which was initiated about one year ago when the Fed had a 50bps cut, but has kept the rate unchanged since. I expect Bitcoin to receive strong tailwinds, and the crypto market could move upward. One way to play this trend is to buy ProShares Bitcoin ETF ( BITO ), which is a Bitcoin futures tracking ETF and a good alternative to the direct spot coin ETFs. BITO's income focus is also attractive to income investors and growth investors who might feel more comfortable receiving an immediate outcome from investing in cryptocurrency. There are also some interesting features of the BITO ETF that are available for investors to explore and manage the risks as well as the total return. BITO ETF Overview BITO is an income ETF actively managed by ProShares. BITO is actually the first ETF in the US that is tied to Bitcoin, according to its official website . The ETF deploys Bitcoin Futures contracts to generate income with a current yield estimated at 52.00%. The ETF portfolio is not complicated. The details of the holdings are shown below. BITO ETF Holdings (ProShares) We can see that CME Bitcoin futures contracts account for over 95% of the weight. This represents the bulk of the ETF's exposures in Bitcoin. The fund uses a yield-rolling strategy to generate income by selling expiring contracts and buying new ones. This is different from some of the Bitcoin income ETFs that are based on selling covered call options to receive the option premium. However, it is interesting to note that the future contracts could generate ultra-high yield (e.g., 52%), pretty much comparable to option income ETFs. On the other hand, the distributions vary greatly over time, as shown below. I suspect the volatility of Bitcoin has certain impacts on the future contracts, causing such variances. BITO Dividend History (SA) The distribution rates, however, have been consistently in high double digits, mostly ranging from 30% to 90%. BITO's expense ratio is 0.95%, which is the lowest in the following selected group of peer ETFs using the option-income strategy. Two of them were recently covered by my previous ratings. Note that, given the limited time period specified to include the newer ETFs, BITO has the best total returns. The first 3 are actually pretty close at around 55% for the past 10 months. I believe that the small difference in the expense ratio may play some role here because the others have higher expense ratios, as indicated in the list. BITO and other Bitcoin ETFs (SA) BITO was started on October 18, 2021. It has grown to an ETF with an AUM of $2.7 billion, which is quite a significant size in the Bitcoin space. It Is The Right Time To Invest In Bitcoin For The Rate-Cut Cycle I have provided the analysis of the long-term outlook for the Bitcoin market in my previous write-ups. The point is that the bitcoin market could grow to be a multifold bigger market than the current $2.2 trillion. This is the key fundamental thesis for a long-term investment. On the other hand, the high volatility of Bitcoin and its early speculative hype a few years ago have kept many investors on the sidelines of this huge market. However, the upcoming rate-cut cycle, which may start this month according to the recent market consensus, should serve as a "green" light for those investors who still believe in the long-term prosperity of currency digitalization. Keep in mind that lower rates tend to weaken the US dollar, which could lift the demand for Bitcoin as a non-sovereign alternative. The Bitcoin futures should also benefit accordingly. The Increasing Crypto Adoption Is A Strong Tailwind The crypto adoption process from the institutions has been picking up momentum in 2025, driven by factors like regulatory clarity and the pursuit of efficiency and innovation from utilizing blockchain technology. From the investment perspective, I think the Bitcoin volatility has been converging to more market-driven behavior, other than the ultra speculative nature observed in the Bitcoin market in the early years. I believe this is one of the reasons why Bitcoin is even viewed as the beta to the broader equity market by a highly influential Wall Street strategist, Fundstrat's head of research, Tom Lee. He actually suggested that Bitcoin could " get to $200,000 before year-end." This would be a huge catalyst for the Bitcoin market. My view is that, regardless of the actual price target, it is the bullish trend that will matter the most to the ETFs like BITO, which lives on the monetization of the Bitcoin volatility. In many ways, the income ETF may serve as a more reasonable holding for this type of risk asset class. For example, if the rate-cut cycle does not progress as expected, investors will have the ultra-high income already collected, and investors will also have much flexibility in hand to determine when and how to reinvest the income. BITO Is A Popular Income Alternative The recent August 2025 executive order has eased regulatory restrictions on including cryptocurrency in 401(k) plans. This will undoubtedly open the door for crypto investments for retirement investments, such as pension funds, etc. I believe that the ETFs with a crypto income yield focus could be among the favorites. For individual investors, BITO appears to be a more interesting solution for a few reasons below. My research shows that the BITO ETF actually appears to be more popular than some of the larger Bitcoin spot ETFs, such as the Grayscale Bitcoin Trust ETF ( GBTC ). The trading volume for BITO is over 9 million shares, while GBTC is about 1.7 million (the recent trading day), but with a much larger AUM of $19.81 billion, almost 8 times BITO's AUM. The volatility is lower for BITO, which is a plus for the volatile bitcoin market. In addition, there are actively traded options for BITO. The following is a snapshot of the weekly option chains. We see that the volumes are good for trading. BITO Option Chain (SA) Note that the options can be used to generate extra income by selling covered calls. More importantly, investors can use the PUT options to place protection if needed. The protective PUTs are often good hedging tools against the market drawdowns. This is particularly handy for this type of ETF that would perform very badly under the bearish scenarios. Such a safety feature may prove very important for a retirement investment. The total return of the BITO ETF has been very good for the past year, as shown below. BITO has been tracking the iShares Bitcoin Trust ETF( IBIT ) closely. Keep in mind that IBIT, with AUM over 80 billion, is one of the largest Bitcoin ETFs. Bitcoin ETF Total Returns (SA) From the above chart, one can also observe the "equity beta" nature of the Bitcoin ETF as mentioned earlier. Both Bitcoin ETFs have outperformed the S&P 500 index significantly in the past 12 months. Risks And Caveats As an ETF of Bitcoin Futures, BITO gains and losses are treated as 60% long-term gain and 40% short-term gain regardless of the holding time, under the Section 1256 tax code. Notice that the short-term gain may result in high tax liabilities. This could be very undesirable for investors, especially considering the high-yield nature. I have my BITO positions in my Roth IRA account to avoid such an issue. The BITO is less volatile than the spot coin ETF. Nevertheless, it is still on the high end of the ETF volatility spectrum. The ETF is considered a risky asset class. The macro backdrop for Bitcoin has turned more supportive over the last 12 months or so. But the uncertainty in the rate cut and the progress of the institution adoption remains high. These unknown factors may cause the drawdowns or even a downtrend for Bitcoin. These tend to cause substantial NAV erosions for the BITO ETF. Closing Thoughts Bitcoin may enter a bull trend thanks to the rate-cut cycle and the increasing institutional adoption. The income approach of Bitcoin can be a good alternative for Bitcoin investment. I start a BUY rating on BITO and recommend it to investors who are interested in playing the possible bullish trend of Bitcoin in 2025 and for the longer term. Individuals who would like to actively manage the risk and income using the ETF's weekly active options may find the ETF a more manageable holding.
