Summary Nicholas Crypto Income ETF stands out over YieldMax Crypto Industry & Tech Portfolio Option Income ETF for crypto-focused, option-based income strategies. BLOX's less aggressive option overlay and secondary income focus support better upside capture and more sustainable payouts, favoring long-term total returns. LFGY's higher yield is funded by return of capital, leading to structural NAV erosion and less capital for future rebounds, making it less attractive long term. BLOX is rated Buy for its balanced approach and early outperformance, while LFGY is downgraded to Hold, suitable mainly for tactical, consolidating markets. I have already analyzed the YieldMax Crypto Industry & Tech Portfolio Option Income ETF ( LFGY ) earlier and found it reasonably good for its primary income objective due to broader crypto-adjacent infrastructure exposure. Since then, another option strategy-based play has arrived in the crypto and adjacent space – the Nicholas Crypto Income ETF ( BLOX ). Since both offer option-based income avenues built over a crypto-related underlying, this article takes a look at the similarities and differences and evaluates the pros and cons of both. Methodology The methodologies of both ETFs are broadly similar. Both have an underlying portfolio of crypto and crypto-adjacent companies and build an option layer around it to generate income. BLOX explicitly states its direct crypto emphasis with an anticipated distribution equally spread out over equity, crypto holdings, and the option overlay. A look at the full portfolio (downloaded from the ETF websites) shows ~40% crypto holdings in BLOX through FBTC (~15.5%), HODL (~15.5%), and ETHA (~9.5%). LFGY also has considerable direct crypto exposure, although it seems to employ ITM option calls to replicate synthetic positions in Bitcoin. Ethereum exposure is through the ETHA ETF route – like in BLOX. Importantly, both the ETFs have an active strategy for the underlying selection – the allocations could change over time as well as the methods adopted (like synthetic positions versus ETFs or other mechanisms). The inclusion of derivatives makes % weight allocation comparisons difficult, but I have listed out the top 10 allocations in both the ETFs below to give a view of the similar nature of equity holdings and the crypto exposure (the IBIT call option is the synthetic bitcoin exposure in LFGY's holdings). Overall, both ETFs seem to be active and allocate healthily in Bitcoin and Ethereum, in addition to a basket of crypto-adjacent equities. Very similar approach – but could show significant differences in how they employ the strategy and the timestamp when the comparisons are made. Top Holdings - LFGY vs. BLOX (Holdings downloaded from ETF websites) The option layer is also active for both the ETFs, with a variety of strategies like covered calls, credit spreads, diagonal spreads, cash-secured puts, collars, and calendar spreads deployed as deemed fit. This includes the active call on what strikes to choose (OTM vs. ATM and distance) and how much of the portfolio is covered through such option strategies. The amount of coverage through a covered call, for instance, could make the difference between capturing decent upsides versus totally capping it (if 100% of the portfolio). Performance Comparisons Given the active nature of the underlying and the option strategy layer, past performance becomes paramount in setting expectations. The below chart shows the total return comparison between LFGY and BLOX. Although BLOX has been around for a few months only and further performance trends should be watched, early indications are that BLOX outperforms LFGY by a decent margin. Data by YCharts This could be a result of several drivers. The underlying portfolio itself could be driving higher returns in BLOX. BLOX seems to have a higher emphasis on crypto, which could be driving the outperformance. Distributions within the equity portfolio show similar broad allocations. The equity exposure differences are primarily in LFGY's substantially higher fintech exposure. LFGY has significant positions in NU Holdings (4.91%), Block (4.11%), and PayPal (3.46%) – holdings absent from BLOX. Additionally, LFGY assigns 4.27% to Opera and diversifies into retail trading with GameStop (3.38%) and e-commerce through MercadoLibre (3.39%). Thematic exposure comparison - LFGY vs. BLOX (Collated by author using data from actual Holdings reported in ETFs' websites) The higher allocation in crypto could work out well for an ETF in more ways than one. If the option strategy allows reasonable upside capture, it could gain from a crypto rally, of course. But that is not necessary. In a conducive regime, bitcoin calls could have higher premiums, and that income could also drive outperformance, even if bitcoins remain stagnant. Since the extent of crypto exposure (although a possible explanation of the outperformance so far) as a factor in outperformance is a multi-variate model (underlying rallies, options aligned well, higher option premiums), this alone is not a predictor of future returns. The same argument holds true for the fintech and other minor equity allocation differences, where LFGY's concentration may have hurt performance in the past few months. BLOX's current portfolio structure may have led to outperformance so far, but I don't see that as a continued source of sustained or structural advantage. Apart from the underlying portfolio, the option layer is another critical determinant of outperformance. There may be differences there too. A less aggressive option strategy could allow better upside capture, leading to outperformance in rallies. On the other hand, aggressive option writing could help in consolidations or even corrections. BLOX's outperformance so far is a combination of both the portfolio holdings currently and a potentially more conducive options layer. While I cannot point definitively to which is the core performance driver, I definitely see an edge in BLOX's approach. BLOX's primary objective (as per the prospectus) is capital appreciation, with income generation as a secondary objective. This usually implies less aggressive option positioning and a setup that allows greater upside capture. LFGY's emphasis on income means better performance in consolidating or bearish markets, but not so much in bullish cycles. Core Mechanics From a core objective perspective, I strongly believe there is no income without growth. In a very unrelated comparison I wrote on MARO vs. NVDY, my analysis upholds some of the core mechanics one should know about option strategy-based income ETFs. One of the conclusions I drew in that article (and which is universally true) is that buy-write ETFs gain much more from the appreciation of the underlying capital than through the option layer. So, an ETF that leaves the option layer less aggressively positioned allows better upsides to be captured – i.e., better total returns. In other words, chasing option income is a poorer method to generate better total return (that funds the income) in the long term. It may sound counterintuitive, but ETFs with a lesser emphasis on income and hence a less aggressive option layer generally tend to do well. In a consolidating or correcting market, LFGY-like income-focused ETFs could do well, but that's a tactical play, not a long-term advantage from options. In the long term, a bull thesis in the underlying is mandatory. If the underlying has a bull thesis, then allowing for better upside capture works out better, with option income a secondary augmentation. The emphasis on yields also leads to another structural problem the total return chart above does not capture. LFGY's primary emphasis on income over capital appreciation implies a close to ~42% yield on cost for investments made a year ago. A large part of this is funded through return of capital. That means a structural decline in NAV. This is a problem because it does not allow the underlying capital to recover from periods of stress. Imagine investing $100 and $40 returned (with ~$5 help from options) in a year when the underlying crashes. Even if the underlying rebounds, LFGY ensures less actual capital to make up for the losses on the way down. Yield on Cost - LFGY (Seeking Alpha) I find BLOX's secondary emphasis on income helpful here. In the chart below, I show the price-to-total-return-level graph. This is an indicator of NAV erosion. The more aggressively an ETF pays out over actual capital appreciation, the lower this ratio is expected to be. There are two things to note from the chart below. One, both ETFs are NAV-eroding by nature. Unless dividends are reinvested (which has tax inefficiencies), investors are likely to lose out on capital appreciation that could have funded the payouts better. Two, LFGY's payouts look far more aggressive, more NAV-eroding than BLOX's relatively conservative payouts. Data by YCharts Tilting to BLOX There are core reasons beyond early historical performance trends (that are supportive too) that tilt the case towards BLOX as an income vehicle when it comes to the crypto-themed underlying space. For one, I find its secondary emphasis on income likely to imply lower (and hence more sustainable) payouts. That's a positive for long-term income investments. Secondly, the outperformance could be due to less aggressive option plays, given that income is a secondary objective. In terms of expenses, there is nothing material to separate the two. BLOX has an expense ratio of 1.3%, only marginally more than LFGY's 0.99%. Overall, BLOX is a Buy and can replace LFGY as the preferred option strategy in crypto. LFGY is therefore downgraded to a Hold. It has its tactical uses in specific regimes where markets consolidate or correct, but there too I would have liked to see more capital left on the table for the rebound.
