YBTC: Bitcoin Covered Call Strategy May Outperform Bitcoin, But Risks A Market Correction

Summary Roundhill Bitcoin Covered Call Strategy ETF (YBTC) is rated Sell due to downside risk from bitcoin’s corrective wave, despite potential near-term outperformance versus bitcoin. YBTC employs a synthetic covered call strategy, offering high yield (76.31%) but exposes investors to full downside risk and NAV erosion. Recent bitcoin ETF fund flows may have normalized the market environment, potentially stabilizing bitcoin volatility that can benefit YBTC’s income strategy. YBTC’s distributions are 100% return of capital, providing tax deferral but increasing risk of capital erosion over time. YBTC SA Repot 3.18.26 The Roundhill Bitcoin Covered Call Strategy ETF ( YBTC ) is an alternative income exchange-traded fund designed to provide investors with indirect exposure to bitcoin through a synthetic covered call strategy. While covered call strategies tend to limit the full upside potential of the fund given the short call position, the market may be positioned for YBTC to outperform bitcoin, creating a differentiated investment opportunity for those seeking exposure to the performance of bitcoin while earning income through a derivatives strategy. While I believe YBTC may outperform bitcoin in the near future as a result of the premium earned on sold call options, bitcoin may be entering the final corrective wave when applying Elliott Wave Theory, suggesting that the price of bitcoin may continue its decline going forward. As a result of this, I am recommending YBTC with a Sell rating. Investment Thesis for YBTC YBTC employs a synthetic covered call strategy to provide investors with exposure to the performance of bitcoin. A synthetic covered call strategy is similar to a covered call strategy with respect to taking both a long and short position with respect to the underlying asset; the core difference between the two types of strategies is that a synthetic covered call strategy is entirely made up of derivatives whereas a covered call strategy has direct ownership of the underlying assets. In the case of YBTC, the fund provides indirect exposure to bitcoin by taking both long and short positions in options derivatives, though has the flexibility to take a direct position in a bitcoin ETF per the fund’s prospectus . The fund does this by buying call options and selling put options to create synthetic long exposure to bitcoin. In turn, the fund will sell out-of-the-money call options in order to earn premium for the fund. While this can be an appealing investment strategy when the price of bitcoin trades within a certain range during the options’ holding period, the fund may limit the full upside potential as a result of the covered call options sold while exposing investors to the full downside risk during a market correction. On the basis of these factors, I have reason to believe YBTC could outperform bitcoin in the near future following a series of repositionings that occurred in late-2025 and early-2026. Towards the end of 2025 , bitcoin underwent a major correction that led to the liquidation of over $19b in leveraged positions within a 24-hour period. These events were the precursor to a further price correction with bitcoin declining to a 1-year+ low of $62.1k per coin in February 2025 before modestly recovering. TradingView (TradingView) While I believe the liquidation of leveraged positions was the beginning of the price correction, I suspect a large component of the deeper decline was the result of the institutionalization of bitcoin, adding bitcoin exposure through the use of spot ETFs in portfolios of individual investors that may not be as comfortable with the volatility bitcoin presents with respect to traditional equity and fixed income funds. Bitcoin spot ETFs were established in January 2024 following the approval by the SEC , leading to billions of fund inflows into these bitcoin spot ETFs. With the emergence of these funds came the emergence of risk-averse investors seeking to participate in the returns of a risky asset. Bitcoin ETF AUM (Bitcoin ETF Fund Flows) In addition to this, with the mass adoption of bitcoin ETFs, liquidity was fundamentally baked into the ETFs, providing investors with a highly liquid asset that can be converted into cash with minimal spread risk . I suspect that the initial price decline experienced in October 2025 led to the widespread exodus from bitcoin spot ETFs and potentially the repositioning out of less liquid funds and into funds with greater assets under management. Bitcoin ETF flows (CoinGlass) You may recall that the market exhibited euphoria in 2025 with the passage of the GENIUS Act and a number of other legislation being considered to provide safeguards for cryptocurrency as well as the establishment of the strategic bitcoin reserve . Despite the political support for cryptocurrencies, the market remains as the ultimate price-setting mechanism for the coins, determining the price of bitcoin based solely on supply and demand. Looking ahead, I believe bitcoin exposure has been in a state of normalization following said period of euphoria. While the price decline may continue in the future, or reverse, I suspect that the steps laid out above, inclusive of the liquidation of highly leveraged accounts and ETF fund outflows, are suggestive that the greater risk to price volatility has been reduced. This could eventually result in price stability, providing an ideal environment for YBTC to perform its best. Looking at the technical chart, I have reason to believe that the price decline of bitcoin is entering the final wave down in the retracement cycle when applying Elliott Wave Theory. Elliott Wave Theory is based on the Fibonacci Sequence, measuring the market through a wave pattern with 5 wave cycles up followed by 3 wave cycles down. This may mean that the final corrective wave is imminent. Elliott wave chart (TradingView) The completion of the final downcycle may result in a reversal or a continuation of the downcycle, which may be dependent on investor sentiment and potential exogenous factors that may occur in the future. Given the potential for the 3rd downcycle, I believe YBTC may face downward pressure, though it has the potential to outperform bitcoin on a total return basis. While the fund exhibits full downside exposure through the synthetic long position, YBTC will continue to earn premium from the sale of out-of-the-money call options, generating incremental value. About Roundhill Bitcoin Covered Call Strategy ETF YBTC was launched by Roundhill on January 18, 2024 on the Cboe BZX Exchange. The strategy has a gross expense ratio of 96bps, a relatively high fee when compared to peer bitcoin covered call strategies. ETF comparison table (Seeking Alpha) YBTC has roughly $171mm in net assets with an average of $4.33mm in share value changing hands on a daily basis, providing moderate liquidity for investors seeking to trade the fund. YBTC pays out weekly distributions with an annualized rate of $17.66/share over the last twelve months, yielding 76.31%. Dividend history (Seeking Alpha) When evaluating these types of funds, investors should review both total returns and price returns to fully understand the value earned from ownership. Per the fund’s most recent 19a-1 notice, 100% of the distribution was derived from return of capital. ROC provides investors with a tax-deferred benefit that lowers the cost basis of the investment. Once the cost basis reaches $0/share, excess ROC will be taxed as capital gains. The benefit of the fund’s price decline is that the future price at which the fund may be sold can potentially narrow the gap, though will also influence the actual return the investor earns from owning the fund. As part of this, investors will be faced with NAV erosion that may deteriorate the value of their investment over time. Total return (TradingView) Price return (TradingView) Risks Related to YBTC YBTC provides investors with exposure to a synthetic covered call strategy, presenting certain risks that should be considered prior to making a final investment decision. Synthetic covered call strategies may limit the full upside potential for an investor while exposing them to the full downside risk of the holdings. The strategy is dependent on market liquidity and potential volatility to earn premium on options sold; greater volatility in the underlying asset may result in higher premium earned. Tighter liquidity in the options market that the fund participates in may result in uneven options pricing. As a result of the underlying strategy, investors may be exposed to NAV erosion over the course of their holding period. Investing in YBTC is not a direct investment in bitcoin. Final Thoughts With bitcoin undergoing a potential corrective wave, YBTC may be positioned to outperform bitcoin, though may face downside exposure resulting from its long bitcoin call and short bitcoin put options positions. As a result of this, I am recommending YBTC with a Sell rating.