Yield Strategy
LBTC’s yield comes from selling covered calls on Bitcoin, an income strategy institutional desks have run for decades, strategy managed Bitwise Investment Manager, LLC.
How Covered Calls Generate Income
A covered call is a two-sided trade. One party holds Bitcoin and sells the right to buy it at a fixed price (the strike) by a fixed date. The other party pays cash upfront (the premium) for that right. The seller keeps the premium no matter what happens next.
Bitwise runs this trade against the active sleeve of LBTC’s backing, on repeat:
What the strategy never does:
- No leverage. Every position is fully covered by Bitcoin held in custody.
- No puts, and no directional view on Bitcoin’s price. Residual delta is bounded by the limits below.
- No physical delivery. Every option settles in cash.
- No lending or rehypothecation. The underlying Bitcoin is not lent, pledged, or reused.
Why the Target Is 2.5%
LBTC targets 2.5% net APY in BTC terms, quoted after the 20% protocol rewards fee. Only a portion of the backing is deployed into the strategy; the passive allocation earns nothing by design, and that is what keeps redemptions reliable.
Behavior Across Market Conditions
| Market | What the book does | Outcome |
|---|---|---|
| Sharp rally | Short calls are rolled to higher strikes and spreads widened to cut delta, taking a controlled cost to reset | Temporary mark-to-market drawdown on the sleeve; full price upside retained |
| Sharp decline | Calls expire worthless and the premium is kept in full | Favorable for the strategy; elevated volatility improves re-entry premiums |
| Rangebound | Calls expire worthless cycle after cycle | Strongest environment; premium compounds across consecutive tenors |
| Volatility spike | Short vega positions mark down temporarily, then normalize as volatility mean-reverts | No realized loss unless positions are closed early |
Low volatility compresses income rather than producing losses. The 2.5% is not earned at the same level in every market condition, and it is a target, not a guarantee: yield fluctuates with Bitcoin market conditions, implied volatility levels, and deployment levels.
Managed by Bitwise Investment Manager, LLC.
Bitwise Investment Manager, LLC is an investment adviser registered with the U.S. Securities and Exchange Commission and is registered with the Commodity Futures Trading Commission as a commodity pool operator and commodity trading advisor. Bitwise Investment Manager, LLC is a wholly owned subsidiary of Bitwise Asset Management, Inc. (“Bitwise”), a global crypto asset manager with more than $9 billion in client assets.
The 2.5% net APY figure is a target, not a guarantee. Yield is variable and depends on market conditions, Bitcoin implied volatility, and deployment levels. Past performance of the Bitwise strategy is not indicative of future results for LBTC.
Note: LBTC’s is not available to U.S. or U.K. persons or persons in other restricted jurisdictions. See the Terms of Service and the Risk Disclosures.
Next Steps
- Yield, Where the strategy fits in LBTC’s full yield stack
- Understanding Yield, How yield reaches your balance through the exchange rate
- Risks, The full risk picture across the protocol