Bitcoin’s dramatic plunge has spooked investors, but a deeper look reveals a surprising opportunity in tech-focused income funds.
Bitcoin’s Slide and the Income Investor
Why a crypto downturn could be a buying signal for high-yield closed-end funds.
- Bitcoin has experienced a significant price drop since peaking in early October.
- Bitcoin-focused income ETFs, like the NEOS Bitcoin High Income ETF, carry substantial risk despite high stated yields.
- High-yield closed-end funds (CEFs) focused on the broader technology sector offer a more stable income stream and potential for growth.
- The Columbia Seligman Premium Technology Growth Fund (STK) has significantly outperformed the NEOS Bitcoin High Income ETF since its launch.
Income investors are understandably asking why a cryptocurrency collapse merits attention. There are two key reasons. First, several exchange-traded funds (ETFs) are designed to generate income from Bitcoin, and this recent drop might tempt some into believing they’ve found a bargain. (Spoiler: they haven’t.) Second, Bitcoin’s struggles shouldn’t deter investors from income-focused closed-end funds (CEFs) that invest in the technology sector as a whole; in fact, it presents a unique buying opportunity.
Bitcoin Drops in Half
The cryptocurrency’s decline since its early October peak is substantial. This downturn has significantly impacted Bitcoin ETFs, including “dividend” options like the NEOS Bitcoin High Income ETF (NYSE:BTCI). With over $1 billion in assets, BTCI warrants a closer examination.
A look at BTCI’s website reveals that its advertised “High Income” is far from a guarantee of safety or reliable dividends. The most glaring warning sign is its current yield of 28%, inflated by the fund’s price decline—yields and prices move inversely. Moreover, the payout has been inconsistent since the fund’s launch in October 2024:
BTCI’s Unsteady Payout
Source: Income Calendar
BTCI employs a covered-call/option strategy on its Bitcoin holdings to generate distributions, theoretically translating crypto gains into income, particularly in volatile markets. However, this hasn’t materialized. The fund’s income hasn’t cushioned its fall; even with reinvested distributions, BTCI (in orange below) has declined almost as much as Bitcoin itself over the past year.
Income Fails to Cushion BTCI’s Fall
This performance isn’t surprising, as similar investments have yielded comparable results. However, a different pattern has emerged with high-yield CEFs focused on the technology sector as a whole. Unlike Bitcoin, the tech sector generally generates strong cash flows and earnings, driving price gains that have consistently outperformed the broader market.
Consider the Columbia Seligman Premium Technology Growth Fund (NYSE:STK). This well-managed CEF holds established tech giants like Alphabet (NASDAQ:GOOG), Western Digital (NASDAQ:WDC), and Apple (NASDAQ:AAPL). The 4.6%-yielding fund has demonstrated a starkly different performance trajectory compared to BTCI since BTCI’s launch:
STK Dusts BTCI
An investor choosing STK to capitalize on tech’s income potential would have gained 47%, while BTCI has delivered a mere 5% return. Even accounting for BTCI’s dividends, an investor since the IPO isn’t even keeping pace with inflation and has experienced a volatile ride, initially peaking well above 60% before the recent downturn.
The STK investor, while receiving a smaller yield, has followed a much steadier path to a 47% total return. The fund’s payout has been smoother, even including occasional special dividends:
Source: Income Calendar
Currently, thanks to the “crypto winter,” STK’s discount to net asset value (NAV) has widened to around 4.9%. This presents a 5% discount on its high-quality holdings—an attractive opportunity for contrarian income investors.
This disconnect occurs when the market misinterprets a problem in one speculative area and indiscriminately sells off the entire sector, creating opportunities for those willing to take the other side of the trade.
