This is the definition of ‘yield’ (in the financial sense) straight from the pages of the Merriam-Webster dictionary,
‘To produce as return from an expenditure or investment: furnish as profit or interest.’[1]
A farmer’s field yields a crop. Your cash in the bank yields interest. A rental property yields rent returns. A dividend stock yields a slice of the profits.
In these examples, there is an asset, the crop, the cash, the property, the stock that produces the yield.
But not all assets produce yield.
Let me give you an example.
Bitcoin.
Bitcoin does not produce a yield. It is by nature a non-yield-bearing asset. Baked into its code from its genesis block all the way back in January 2009 is the fact it does not generate yield.
But the boffins at TradFi’s biggest investment institutions don’t like taking no for an answer.
So, they’ve waved their financial wizardry wands and manufactured complex, convoluted ways you can ‘earn yield’ from Bitcoin.
My question, is this an improvement to Bitcoin, or a gigantic house of cards under construction, inevitably meant to come crashing down?
Bitcoin is perhaps the most basic asset on Earth. Just 21 million units, a public blockchain, open-source code and an open network that anyone anywhere can join. Its beauty is in the fact it’s so simple.
There is no cash flow inside Bitcoin at all, and it is not like its crypto-cousins like Ethereum, where proof-of-stake allow for inbuilt yield potential.
That means when extracting ‘yield’ from Bitcoin it has to be manufactured.
Big instos like BlackRock and Goldman understand this, but they are also the kings of manufactured products.
On 12 August, Goldman Sachs (NYSE: GS) agreed to pay up to $2.25 billion[2] for NEOS Investments, an ETF provider whose crown jewel is BTCI, a Bitcoin ‘high income’ ETF distributing around 27%.
That comes hot on the heels of BlackRock (NYSE: BLK) launching BITA on 16 June, the iShares Bitcoin Premium Income ETF,[3] selling call options on up to 35% of its Bitcoin for a 15% to 25% target yield.
Again, to reiterate the entire opening to today’s essay, none of that yield is produced by Bitcoin. It is manufactured from Bitcoin’s volatility through the wizardry of TradFi.
But there’s a catch.
BTCI pays that oh-so tantalizing 27%... but it fell 42.55% over the past year.[4] Added to this, its prospectus freely discloses that distributions may partly be your capital getting handed back to you.[5]
Then there’s Michael Saylor, who I wrote to you about this week with his ‘Digital Finance Stack,’ with Bitcoin as Digital Capital, Strategy’s (Nasdaq: MSTR) STRC preferred stock as Digital Credit, the SR-strcUSX token as Digital Money, and USDT as Digital Currency.
The allure of STRC is that chunky 12% dividend, but to keep paying it and to try and get the par value back to $100, Strategy has been selling off Bitcoin and selling MSTR stock to fill the cash coffers.
What this all points to is that Bitcoin is being rinsed for all of these layers of complexity to try and extract yield from an asset that inherently does not deliver yield. And I think there’s a bit to worry about here.
Remember the ‘yield wars’ of 2021? When platforms like Anchor Protocol, Celsius Network, and BlockFi were all promising eye-watering yield returns on crypto?
Remember how they all failed in 2022?
Yes, FTX was central to a large portion of that failure, but if the whole house of cards was sustainable anyway, then it wouldn’t have collapsed now, would it?
I can’t help but think funds that are claiming 20%+ yields on Bitcoin are destined for the same ending, or at the very least rinsing out all the capital of the fund to end up on the junk heap.
The fact they’re tied to Bitcoin too, isn’t a great look, but when you drill down into it all, the good news is that even if these Bitcoin yield products do end up in the crypto-products rogues gallery, only remembered as giant failures, Bitcoin would still remain untouched.
Complex products manufactured and overlayed onto the world’s most simple asset is TradFi down to a tee.
My take is that as more of these silly things get launched into the market, that you edge further and further away from them.
Bitcoin is what it is, don’t pretend it’s something else that TradFi can abuse.
Just own the asset, stack sats, hold your keys, and let volatility fade away with a long-term hodling strategy rather than trying to extract more from it that simply isn’t there.
If you disagree with me and want a slice of these funds, fine, but know exactly what you’re buying into, and that some of the yield may be your own money coming full circle, and that none of it is actually generated by Bitcoin itself.
Bitcoin yields nothing, and anyone pretending otherwise is kidding themselves.
Trust in crypto,
Adam Atlantic
[1] https://www.merriam-webster.com/dictionary/yield
[5] https://neosfunds.com/wp-content/uploads/BTCI-Prospectus.pdf
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