Bitwise has begun liquidating six option-income ETFs tied to major crypto assets, with final cash redemptions expected in August. The funds offered high payouts but returned investor capital rather than generating yield.
Bitwise Asset Management has started liquidating six of its option-income exchange-traded funds (ETFs), ending trading and moving to cash redemptions for remaining shareholders. The affected funds, which tracked option strategies linked to assets such as Coinbase, Marathon Digital, GameStop, Circle, and Ethereum, ceased trading on July 31. Investors who still hold shares after August 3 will not be able to sell them on the open market and will instead receive a cash payout based on the fund's net asset value (NAV) as of August 7, with proceeds expected to reach brokerage accounts around August 10, according to Bitwise's official timeline.
High Payouts, Zero Yield
The six ETFs-ICOI, IMRA, IMST, IGME, ICRC, and IETH-were marketed with annualized distribution rates as high as 25%, but Bitwise's own disclosures showed that these payouts were not generated from investment income. Instead, the funds' 30-day SEC yields were consistently reported as 0%, indicating that distributions were largely a return of investors' original capital rather than actual yield. Bitwise's methodology annualized the most recent monthly payout and divided it by the latest NAV, but the company made clear that this figure did not represent total return or actual income.
Changing Return of Capital Estimates
Throughout the spring and early summer, Bitwise's estimates of the portion of distributions classified as return of capital shifted. In April, the company estimated that five of the six funds' payouts were entirely return of capital, with IGME as the exception. By June, all six funds' distributions were estimated to be 100% return of capital, and none reported a positive SEC yield. Since-inception NAV returns for the funds ranged from -12.47% to -66.11% as of late June, reflecting significant losses for long-term holders despite the headline payout rates.
Liquidation Process and Investor Impact
The Bitwise Funds Trust board voted to close the products on June 30, and the funds stopped accepting new creation and redemption orders after July 31. Shareholders who did not exit before the trading halt are now subject to automatic redemption at NAV, with the final value determined on August 7. The company's filings note that investors may realize a capital gain or loss depending on their cost basis, and that the funds may or may not make additional distributions before the final payout. The rationale for the closures was not disclosed in available filings.
Combined assets under management for the six ETFs stood at approximately $23.1 million just before liquidation, with individual fund NAVs ranging from $7.22 to $22.82. The funds' performance and payout structure highlight the risks of high-yield strategies that rely on returning investor capital rather than generating sustainable income. This development comes as other crypto-linked products have faced scrutiny over liquidity and market structure, as seen in recent coverage of XRP's derivatives-driven liquidity risks.
According to Bitwise's published data, the annualized distribution rates for these ETFs fell from a range of 11.15%-25.93% in April to 7.44%-22.36% by late June, while NAV returns since inception remained negative across all products. The final amount investors receive will depend on the NAV calculation scheduled for August 7, with cash expected to be distributed around August 10 through brokers or other intermediaries.
Option-income ETFs use derivatives strategies to generate cash flow, often by selling options on underlying assets. While these strategies can produce regular distributions, they also carry the risk that payouts may come from returning investor principal rather than realized gains or income. Investors should carefully review fund disclosures to understand the source and sustainability of advertised yields, especially in volatile or thinly traded markets. The classification of distributions as return of capital does not necessarily mean the payouts are fictitious, but it does mean that investors' original investment is being returned, which can erode NAV and long-term returns if not offset by genuine income generation.
