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Yield Strategy

LBTC’s yield comes from selling covered calls on Bitcoin, an income strategy institutional desks have run for decades, managed by Bitwise Investment Manager, LLC.

2.5%Net APY target, BTC terms
60%Maximum active allocation

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 allocation of LBTC’s backing, on repeat:

1

Write calls above the market

Calls are struck roughly 1.5 to 2 standard deviations above the spot price. At initiation, the large majority of positions are expected to expire without Bitcoin’s price ever reaching the strike, roughly a 5 to 10% probability of exercise when the position is opened.
2

Collect the premium

Counterparties pay upfront for optionality on Bitcoin’s price. Premiums settle immediately at execution, and the income is measured in BTC terms.
3

Manage the position

If Bitcoin’s price approaches a strike before expiry, the position is bought back and rewritten at a higher strike, typically retaining most of the premium. Positions are laddered across expiry dates rather than concentrated on one.
4

Settle in cash, repeat

Options are financially settled, so no Bitcoin changes hands at expiry. The cycle repeats 12 to 15 times a year, across tenors of primarily six to eight weeks and never longer than six months.

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

MarketWhat the book doesOutcome
Sharp rallyShort calls are rolled to higher strikes and spreads widened to cut delta, taking a controlled cost to resetTemporary mark-to-market drawdown on the active allocation; full price upside retained
Sharp declineCalls expire worthless and the premium is kept in fullFavorable for the strategy; elevated volatility improves re-entry premiums
RangeboundCalls expire worthless cycle after cycleStrongest environment; premium compounds across consecutive tenors
Volatility spikeShort vega positions mark down temporarily, then normalize as volatility mean-revertsNo 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. Since 2017, Bitwise has established a track record of excellence helping investors understand and access the opportunities in crypto. Bitwise manages a suite of over 70 investment products in the U.S. and Europe, spanning ETPs, index funds, alpha and SMA strategies, and staking solutions. The Bitwise team of over 175 technology and investment professionals is backed by leading institutional investors and has offices in San Francisco, New York, and London.

The covered-call strategy has a 4.5-year operating history. From 2022 through 2026 YTD, gross historical returns have been positive in every calendar year. Past performance does not guarantee future results and covered-call strategies carry the risk of assignment in different market conditions.

LBTC runs a deliberately conservative implementation. The mandate disallows leverage, borrowing, and naked short positions and every position must be fully covered by Bitcoin held in custody. Only a portion of the BTC backing LBTC is deployed into the active strategy.

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
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