Fidelity Digital Assets to Provide Custody for Bitcoin Derivatives Yield Fund

An asset manager wants to have a go at a bitcoin-options-based fund as major exchanges make crypto derivatives trading more accessible to investors.

The Los Angeles-based Wave Financial has launched the Wave BTC Income & Growth Digital Fund, touting the fund to be the first crypto-derivatives-based yield fund on the market.

After several months of due diligence, Tsai said Fidelity Digital Assets is now on board to provide custody for the fund.

The idea is to capture part of a new market of yield products in the crypto space, building on creativity from traditional funds and the growth of the crypto derivatives platforms that underpin the technical aspects of these new funds.

It aims to distribute dividend that is 1.5 percent net asset value of the bitcoin held in the fund, potentially resulting in an 18 percent annual yield.

The bitcoin income fund charges 100 basis points fixed management annually, and takes 30 percent of any returns above the 18 percent yield, putting the rest back into the fund, according to Tsai.

One of the peer products in the equity option-based fund space is Eaton Vance Tax-Managed Buy-Write Income Fund.

All of these funds are possible because of the operational simplicity today provided by major crypto exchanges offering new platforms to trade crypto derivatives.

The prospects of new funds and structures may be exciting, but the jury is still out if the Wave fund will gain traction, as management waits for the first substantial investors to subscribe.

The crypto derivative-based fund could also diversify investors' portfolios as it is uncorrelated to most traditional asset classes, Tsai said.