Bitcoin’s Income Strategy Has Hit a Treasury Roadblock

Last Updated on 29/10/2026

Many long-term Bitcoin investors are familiar with the challenge of holding assets that generate no regular income. In 2026, Wall Street began promoting new investment products designed to address this problem. BlackRock (NYSE: BLK) introduced a Bitcoin income fund in June, while Goldman Sachs Group submitted a filing for a competing product in April. However, rising bond yields and Bitcoin’s decline below $80,000 on October 26 have raised questions about the attractiveness of these strategies. Bitcoin income products may have potential, but their most natural audience could be investors who already own Bitcoin.

Treasury Yields Set a Higher Benchmark for Bitcoin Income

The 10-year US Treasury yield reached its highest level since 2002 on October 1, according to Bloomberg, and remained close to 5%. Meanwhile, the Federal Reserve raised interest rates on September 16 for the first time since 2023, CNBC reported.

Although market uncertainty surrounding bonds has contributed to Bitcoin’s volatility, elevated Treasury yields create a separate challenge for income-generating Bitcoin investments. For example, Abra targets annual returns of 2% to 5% through its Bitcoin strategy. Investors can potentially earn comparable returns from Treasuries without taking on Bitcoin’s substantial price volatility.

Industry executives have differing views on this comparison. Himanshu Sahay, co-founder and chief revenue officer of Arch Lending, believes Treasuries have the advantage when both investments are evaluated purely on income. Conversely, Michael Vander Meiden, co-founder and chief product officer of HoneyB, argues that the comparison overlooks Bitcoin’s potential role as a hedge against risks associated with government debt.

Both perspectives have merit, but fund assets highlight the current difference in investor demand. The iShares Bitcoin Premium Income ETF (NASDAQ: BITA) held approximately $96.8 million in assets on October 22. Meanwhile, the iShares Bitcoin Trust ETF (NASDAQ: IBIT) managed around $64.7 billion as of October 26. BITA therefore represented less than 0.2% of its larger counterpart’s assets. BlackRock had positioned its income product partly toward investors who did not previously own Bitcoin, but adoption appears limited so far.

Covered-Call Strategies Generate Volatility-Driven Income

BITA generates income by writing covered calls on approximately 25% to 35% of its portfolio, distributing the collected premiums monthly. However, these payments fluctuate considerably with market conditions. BlackRock reported a distribution rate of 11.96% on July 23, which climbed to 18.85% by August 13 before declining to 14.22% on October 22.

These figures illustrate that covered-call Bitcoin strategies generate returns largely influenced by market volatility rather than fixed contractual interest. Vander Meiden believes the opportunity may be narrowing as Bitcoin’s implied volatility declines and similar strategies become increasingly popular.

Nevertheless, both executives consider covered calls among the more resilient approaches during severe market declines. Unlike lending-based products, these strategies do not inherently expose investors to borrower defaults or collateral liquidations. However, they are not risk-free. BlackRock warns that option premiums may be insufficient to offset losses when Bitcoin prices fall. Morningstar analyst Bryan Armour similarly cautioned Reuters in April that Goldman Sachs’ proposed product could struggle to attract investors for this reason.

Bitcoin Lending and Borrowing Introduce Different Risks

Bitcoin lending strategies generally offer more limited returns because demand for borrowing Bitcoin remains relatively weak. Vander Meiden explains that borrowing rates reflect this limited demand, while lenders continue to face the possibility of borrower default.

Borrowing stablecoins against Bitcoin holdings presents a more complicated trade-off. Vander Meiden considers this approach attractive for investors who maintain conservative loan-to-value ratios and hold liquid assets that are not strongly correlated with Bitcoin. Sahay, however, warns that the strategy introduces leverage and becomes less attractive when borrowing costs rise above the yields available from alternative investments.

The central risk lies in Bitcoin serving as collateral. During periods of financial market stress, Bitcoin can experience sharp declines, potentially triggering margin calls or forced liquidations before an investment generates enough income to compensate for the risk. This concern also applies to proposed Bitcoin-backed stablecoin models, raising questions about the sustainability and source of the promised yield.

Institutional Adoption Depends on Custody and Investor Protection

The collapses of Celsius and BlockFi in 2022 demonstrated the dangers associated with lending digital assets and unclear ownership arrangements. Celsius suspended withdrawals on June 12, 2022, before filing for bankruptcy the following month. BlockFi filed for bankruptcy on November 28, 2022.

Both executives argue that stronger investor protections should include independent custody arrangements and restrictions on the reuse of client collateral. Sahay additionally emphasizes the importance of keeping assets outside a lender’s bankruptcy estate, implementing multi-party controls, and establishing liquidation procedures that have been tested under extreme market conditions.

For institutional investors, particularly pension funds, understanding the legal treatment of assets during bankruptcy is essential. The contractual terms must clearly explain whether investors retain ownership of their Bitcoin and what happens if a service provider becomes insolvent. The experience of Celsius, whose Earn terms warned that deposited assets might not be recoverable, underscores the importance of these safeguards.

The Outlook for Bitcoin Income Products

Bitcoin income strategies have not yet established themselves as a distinct mainstream asset class. Instead, they currently serve as a collection of financial tools for existing Bitcoin holders seeking to generate returns from otherwise unproductive assets. While this market has genuine potential, current adoption suggests that demand remains below the expectations created by Wall Street’s initial enthusiasm.

Several indicators could determine whether the sector gains broader acceptance:

• BITA’s asset growth: Whether investor demand continues to expand following the Federal Reserve’s October 28 decision.
• Goldman Sachs’ proposed fund: Whether its April filing progresses into an operational investment product.
• Treasury yields: Whether the 10-year yield falls below 5%, reducing the appeal of risk-free alternatives.
• Custody transparency: Whether Bitcoin lenders introduce regular, independent verification of client collateral.
• Performance during market stress: Whether income products can continue distributing returns through the next significant Bitcoin downturn.

For now, Treasury yields near 5% present a formidable challenge to Bitcoin income products. To attract investors beyond existing Bitcoin holders, these strategies will need to demonstrate that their additional risks offer sufficiently compelling benefits over conventional fixed-income investments.