BLOX: Income Will Keep Me Warm During The Crypto Winter

Summary Nicholas Crypto Income ETF offers diversified crypto exposure with a 36% distribution rate, primarily generated through options strategies and ETP holdings. BLOX provides indirect exposure to Bitcoin and Ethereum, blending ETPs, crypto-related equities, and active options trading for income generation. Distributions are largely classified as return of capital, offering tax deferral benefits for taxable accounts, though recent payouts have declined with crypto weakness. BLOX may outperform in a prolonged crypto downturn by providing steady income, but will lag pure-play crypto funds if the sector rebounds sharply. For anyone that's been living under a rock, Bitcoin ( BTC-USD ) and other major cryptocurrencies have not been doing so well as of late. While gold and stocks notch new highs, Bitcoin is over 5% lower than where it was at the start of the year. Data by YCharts While we're still above the April lows, Bitcoin peaked in October and has been on a consistent downtrend since then, with some stabilization around current levels, although it's unclear how long this will hold. This article isn't about Bitcoin per se, but about the average crypto investor and what they can do to weather these kinds of moments. For my regular readers, the answer is usually the same from me: try to earn some income while you wait. With crypto, it's little different. Enter the Nicholas Crypto Income ETF (BLOX), which debuted back in June this year. Inception 6/16/25 Price $18.60 Distribution Rate 36% Dividend Amount (TTM) $3.84 Dividend Frequency Weekly Return of Capital Estimate ~54% Assets Under Management $219.49M Expense Ratio 1.03% BLOX ETF Overview The fund, on its website , promises: BLOX is an actively managed exchange-traded fund that provides exposure to blockchain technology to enhance income and provide portfolio diversification. The fund blends digital asset-related investments and traditional income-generating securities to capture growth potential in emerging technologies while maintaining a focus on risk-adjusted returns. And it should be of note that "digital asset-related investments" is a key phrase here, and a little nebulous (likely on purpose). Here's another excerpt from the website on this note: The Fund does not invest directly in bitcoin, ether or any other digital assets. The Fund does not invest directly in derivatives that track the performance of bitcoin, ether or any other digital assets. The Fund does not invest in or seek direct exposure to the current “spot” or cash price of bitcoin or ether. This may be a bit confusing, but I think this wording is supposed to exclude holding cryptocurrencies directly on the ETF balance sheet. Instead, they invest through exchange-traded products ("ETPs"). They definitely invest in Bitcoin and ether ETPs, as evidenced by their holdings in HODL , FBTC , and ETHA . To be clear, while the above quoted statement is true, the fund does have exposure to the price of Bitcoin and Ethereum. When looking at the holdings, here's what we see: Seeking Alpha Over 25% of the fund's holdings are ETPs that directly track cryptocurrency price changes. The rest of the fund is spread out across related companies, some directly engaged in cryptocurrency mining operations like HUT and IREN; others in the manufacture of the chips that can be used to mine cryptocurrencies like TSM and NVDA ; those engaged in cryptocurrency finances like COIN ; and those engaged in crypto-treasury operations like MSTR and BMNR . These holdings are subject to change day-to-day, and so keep in mind that the fund will not always look like this, as it is actively managed. The number of holdings is rather high because the fund also owns a lot of options, which are used to generate the income the fund kicks out. Most of these companies pay little to no dividends. In fact, most pay nothing at all. So options are bought and sold to generate income for the fund, which is then distributed to shareholders. The options portion of the portfolio looks like this and is a tangled mess that only the active managers really understand the purpose of. This is one of the catches to investing in funds like BLOX because one needs in management's ability to run these options and do so profitably. XFunds/Nicholas Wealth BLOX ETF Dividends The BLOX ETF pays weekly, which is not necessarily a plus from my perspective because I see the frequency of dividends as mostly irrelevant -- I'd even go so far as to say that a tighter frequency may put pressure on the manager to take aggressive positions that they otherwise might not if they had more time to generate the income necessary for distributions -- but it is absolutely a pro for some income investors who prefer the faster turnaround on distributions. Here are its past two months of distributions: XFunds/Nicholas Wealth And here they are visualized over time: Data by YCharts Dividends have fallen to all-time low levels, largely because of the recent sell-off in cryptocurrencies. I would imagine that when these kinds of things sell off, the managers tend to reduce their short exposure with the options providing for more upside in a recovery, but lowering distributions for current shareholders. So this is to be expected to some degree. So I wouldn't expect dividends to continue this trend unless cryptocurrencies continue their trend lower as well. If the sector bounces back, which would be a positive for the BLOX ETF because of its holdings, then we should expect dividends to kick back up towards the $0.15 range. A positive note on the dividend side is that distributions are largely counted as return of capital ("RoC"). This is due to an IRS accounting rule that allows for options income generated inside the ETF structure and then returned to shareholders to be counted as ROC. This reduces one's cost basis when distributed instead of producing taxable events in the year that it is earned. This is largely favorable to investors in taxable accounts, as they can defer the taxes until they sell their shares. If your cost basis hits zero, all future distributions do create taxable events, but they're taxed at your long-term capital gains tax rate, which is typically higher than the income tax rate. Still making this preferable to ordinary income producing funds. For the year so far, BLOX estimates that over 50% of their distributions are ROC, with 39% in the last distribution. This can be found in the latest 19A1 form, but note that this is an estimate and not a full and complete total that should be relied upon for tax reporting. 19a-1 form (XFunds/Nicholas Wealth) BLOX Performance One thing I found interesting is that BLOX has a variety of investments, some with more exposure to cryptocurrencies than others. NVIDIA, for example, has a much larger exposure to the AI trade and to cloud computing than it does to cryptocurrency. This varied exposure that indirect exposure to cryptocurrencies means that BLOX's performance does not track directly to cryptocurrencies at large. Here are a few charts showing BLOX's performance since its inception against various other instruments: BLOX vs. BTC & ETH ETFs, where we can see that BLOX has kept up with Ethereum and managed to, since its inception, avoid the losses that Bitcoin has generated despite its high allocation to Bitcoin ETFs. That allocation may have been different a while back because the funds' holdings are liable to change day-to-day. Data by YCharts BLOX vs. Crypto-Treasury Companies, where we can see BLOX vastly outperform pure-play Bitcoin adopters and convertible bond funds. While BLOX has an allocation to these assets, they are a smaller portion of the holdings and are likely the target for a lot of the short exposure via the options trading since they have very high volatilities. Data by YCharts BLOX vs. Broad Crypto ETF, where we can see how capping the upside with covered calls could cause the fund to underperform at times. NODE, by contrast, has no income component and is long-only with a very similar basket to BLOX. Both funds have different holdings but follow a similar ethos. Data by YCharts All told, BLOX seems to be a great way to diversify among crypto-related endeavors and is certainly better than a concentrated bet in times like this, where crypto is down and very volatile. For those not seeking income, NODE may be the better option, but that would be for another article, as I haven't covered VanEck's offering before. They're not a perfect one-to-one comparison. This underperformance may be due to the income, my best guess, but may also be due to the differences in holdings. More time is needed to tell on that front. The Crypto Bull Thesis Is it true that what goes down must come back up? If you are bullish on crypto, the answer seems to be yes. I understand why one would be bullish on crypto right now. Conservative institutions like Vanguard and Bank of America, who have long told customers that they were unable to purchase cryptocurrencies through them, have changed their minds. Bank of America is now recommending up to 4% exposure , and Vanguard is allowing their customers to buy crypto-related assets like Bitcoin ETFs and even the BLOX ETF itself. This change in institutions is very bullish for crypto, as is the current administration's stance on cryptocurrency, which is that they believe in deregulation and even adding Bitcoin to a future U.S. sovereign wealth fund . Less regulation for crypto treasury companies as well as less regulation for the crypto world at large allows for more adoption, more leverage to be taken, and more gains to be had. That is a very bullish look on the situation, of course, and doubters of cryptocurrencies should stay far away from this ETF and any like it. While the income could provide some padding for the downside, it is in no way going to make up for losses if cryptocurrencies continue to slide as dramatically as they have over the last few months. For a more complete take, I recommend this article from my colleague, Mandela Amoussou, that discusses the institutional adoption trends in more depth. Conclusion Ultimately, I was interested when I was first recommended from a reader to take a look at the BLOX ETF. It is not a fund that I am personally interested in investing in (as my crypto bets are more singularly focused, not broad), though it certainly has its merits, and I can see how someone looking for income and crypto exposure could benefit from this fund. What remains to be seen is if this recent drop is setting a new floor or has become the new ceiling. And either way, someone who is long-term bullish on crypto would benefit from getting the income in the meantime. If this drop in cryptocurrencies turns into a winter bear market from which crypto will be suppressed for some time, then BLOX is a great way to play it because it will continue to kick out income even at the lower levels while it waits for recovery. If recovery is further away than we expect, BLOX investors might be the winners over those investing in non-income broad funds like NODE or directly in the coins either through exchanges or through ETFs like IBIT, etc. Thanks for reading.