Summary NEOS Bitcoin High Income ETF (BTCI) is downgraded to Hold as its core use case has weakened post-Bitcoin correction. BTCI’s light covered call layer enables upside capture but offers limited drawdown protection and marginal income in flat markets. BTCI’s value proposition is strongest near Bitcoin market highs; after recent declines, direct Bitcoin exposure via IBIT or HODL is preferable. BTCI’s future returns depend on a bullish Bitcoin thesis, but current risk-reward does not justify allocation versus spot Bitcoin ETFs. I have been bullish on the NEOS Bitcoin High Income ETF ( BTCI ) in the past because of its excellent track record when it comes to capturing upside rallies - something many income plans struggle to achieve because of the capping nature of their covered call option layers. Since my last thesis on BTCI, it has fallen by ~15% in total return terms and that opens up a debate on BTCI's utility going ahead. Not because it has surprised me in terms of being able to do what it is structurally supposed to, but because its use case was for a Bitcoin high regime that has now passed. The BTCI call has gone wrong because the underlying thesis on Bitcoin has. Right now, investors who were using BTCI as a Bitcoin entry at the highs, have more value shifting to simply holding Bitcoin directly, through the iShares Bitcoin Trust ETF ( IBIT ) route - a proxy for Bitcoin because of its popularity and high liquidity - or any other spot or wrapper ETF. For income investors too, that route had better risk-adjusted return prospects that could fund self-styled payouts over time. BTCI's Light Covered Call Layer I downloaded the current holdings in BTCI (as of 29th January, 2026) from the ETF website and saw around $135m each invested in two spot ETFs, HODL and IBIT. Then there is a synthetic exposure constructed through options on the Cboe Bitcoin U.S. ETF Index (CBTX). This allows leverage to free up cash that can be invested in Treasuries as a ballast. Specifically, the fund holds long call options and short put options at the same strike (2070) and the same expiry (April 2026), with ~3.99k contracts on each side. Each CBTX contract represents a notional exposure of $100 multiplied by the index level (now in the low 2000s). So, BTCI's synthetic option positioning amounts to ~$800m of synthetic notional exposure. That represents close to 80% of the total Bitcoin exposure in BTCI. The portfolio also writes ~1.33k covered calls each at 2230 and 2330 strikes - both expiring in February 2026. These strikes are 8% and 13% away from the synthetic position initiated at the 2070 strike. In terms of number of contracts and notional covered through the call writing layer, two legs of ~1.33k covered calls account for 50-55% of the full portfolio spot Bitcoin exposure (including Bitcoin ETFs and synthetic exposure). However, considering the 2070 strike for the synthetic position (usually initiated in the money), the covered call looks at least a little conservatively out of the money - if not by the whole 8-13% range we noted from the 2070 strike, then at least somewhere around 3-8% away from at the money strikes. In other words, while the headline notional of the written calls looks large, the effective coverage is much smaller once you account for moneyness. Overall, this is not a very aggressive covered call layer at work in BTCI. Aggressive would look like 100% notional coverage and that too at the money. This lighter covered call layer explains how BTCI is able to capture upsides well. This lighter covered call approach also means lower drawdown protection (which is anyway limited by the premiums earned) as well as very little income in a regime when Bitcoin consolidates. Utility - Then and Now BTCI's structural limitations and advantages have not really been a revelation in the past 3-4 months. In my last analysis , I had mentioned BTCI closely mirrors the path of the underlying and saves a couple of percentage points in a ~20% fall spanning almost a couple of months. This is not huge drawdown mitigation, but somewhat acceptable.. So, when BTCI is down by ~15%, while IBIT is down by ~18% (since the time of my last thesis), it is not a new learning, neither new data evolving that resets expectations. BTCI has actually done exactly what its expected job was. Data by YCharts The relatively light covered call layer also means there is only marginal edge in terms of income generation in flat or benign market conditions. I had noted in September, Theoretically, you would expect the strategy to earn a majority of the ~4.5% premiums at play every month, but in reality most option strategies fail to consistently earn anything significant. The same is true for BTCI. When the performance in drawdowns is limited, and expectations in a flat market are not as great as a more aggressive option strategy (which has other drawbacks like capping upside), the use case for BTCI becomes very clear. BTCI is a psychologically easier vehicle to ride Bitcoin at the highs. Although the drawdown mitigation is not huge, when investors have a fear of heights after a Bitcoin rally, BTCI offers a less daunting entry - knowing fully well it will trace upsides reasonably well from there, but offers consolation if there is a crash (material or not). The case for BTCI in September was therefore valid. Not so much today after Bitcoin has corrected by a decent margin. Whether it has room for further corrections is a separate discussion, but it certainly not at the highs. Bitcoin investors have two routes now depending on their outlook and neither point to BTCI as a useful vehicle in this regime. For those who believe there is room for correction, the fear of heights is no longer as big a factor compared to when Bitcoin is actually making new highs. So the 2-3 percentage point insurance should not be as meaningful. The other group of investors, like me, who believe Bitcoin has a rebound in the works and still retains a long term bull thesis, will find better value in riding spot Bitcoin (or ETFs like IBIT, HODL, etc.) because the upside captured in that route is far higher than what BTCI can offer, despite its relatively acceptable performance in rallies. The BTCI benefit in flat markets are again not meaningful anyway to fund the wait if the rebound is delayed. BTCI Needs a Bull Thesis on Bitcoin Overall, while I am not surprised by BTCI's total returns drop since September relative to how Bitcoin prices have panned out, there is one thing where I stand corrected. In June 2025, I had said BTCI does not need a Bull Thesis in Bitcoin. Going by data that has evolved since, including what I observed in September, BTCI surely does need a bullish thesis in Bitcoin to deliver well-funded income payouts. So, going by that requirement, its immediate future expectations are shaped by Bitcoin's own thesis. And on that front, the picture is more constructive structurally than tactically. Institutional and retail participation continues to deepen through regulated vehicles - IBIT became the fastest growing ETF to hit the $70b AUM threshold in 2025. While the AUM has come down over the past 3-4 months as prices have corrected - they remain still higher than where they were around the start of 2025, when IBIT was trading at lower prices. Data by YCharts There are other supportive factors for the long term bullish view. Bitcoin’s supply growth has slowed further following the halving in 2024. While the tighter supply does not prevent crashes or corrections, like the one we recently witnessed, it does become relevant when demand returns. Greater bitcoin adoption and regulatory supports globally are other factors I have mentioned in the past for Bitcoin's bullish prospects. At the same time, the near term path need not be a straight line. Bitcoin could remain sideways for a long stretch before liquidity and growth-favorable market conditions return. For investors who share my bullish thesis too, BTCI does not seem to offer the same risk-reward, at least psychologically, as it did in September. The entry point in Bitcoin today is not as stretched and therefore the need for a smoother ride is reduced. If Bitcoin corrects further, the limited downside cushion offered by the light covered call layer is not sufficient to make BTCI a true defensive allocation - especially now that the risk-reward is less skewed than it was near the highs. BTCI works best as a positioning tool near market highs. That use case has weakened after recent corrections. Hence I downgrade BTCI to a Hold. This is irrespective of whether investors have a bullish view in Bitcoin ahead or not. The strategy is still doing what it is designed to do, but the design does not add value in today's environment.
