Bitcoin’s (BTC) spot price has been volatile in 2025, but many investors are still seeking crypto exposure, either by owning BTC directly or through a cryptocurrency-related exchange-traded fund (ETF).
One such ETF is the ProShares Bitcoin Strategy ETF (BITO), a futures-based fund that has emerged as one of the most generous monthly distribution (or dividend) payers. As of May 3, 2025, BITO has a dividend yield of approximately 62%, a figure that has garnered significant attention from investors seeking current income.
Today, we examine the BITO ETF and what the monthly distributions may mean for long-term investors. Let’s first start with the performance and structure of the fund to better understand why BITO’s dividend is so high.
The Performance of BITO
Launched in October 2021, BITO was the first Bitcoin-linked ETF approved for trading in the US. At present, the fund has around $2.2 billion under management and remains one of the most actively traded crypto-related ETFs on the market.
Yet, instead of holding Bitcoin directly, BITO has exposure to the crypto asset through Bitcoin futures contracts traded on the Chicago Mercantile Exchange (CME), a major US derivatives marketplace. This structure allows BITO to track Bitcoin’s price movements without owning the asset itself.
Therefore, the potential returns from owning Bitcoin directly versus having exposure to the crypto’s moves through a futures-based ETF wrapper, such as BITO, are not the same. For example, the year-to-date return of Bitcoin is 2.6%. On the other hand, so far in 2025, the BITO ETF is down 10.2%.
Thus, BITO has underperformed the actual cryptocurrency BTC. In addition, BITO’s relatively high annual expense ratio of 0.95% can reduce net returns for long-term investors as well.
How BITO is Structured
BITO’s reliance on futures contracts introduces significant transaction costs and affects returns. A futures contract is a legally binding agreement to buy or sell a specific asset at a predetermined price on a set future date. These contracts enable investors to take positions without directly owning the underlying asset.
In futures trading, investors need to pay attention to the concepts of contango and backwardation. To maintain exposure, a fund like BITO must regularly “roll” its futures contracts by selling expiring contracts and buying new ones. This structure introduces unique characteristics and costs that are crucial to understand.
To maintain its exposure, BITO must regularly “roll” its futures contracts. This means selling contracts that are nearing expiration and buying new ones with later expiration dates. The cost of this rolling process depends heavily on the shape of the futures curve.
In most cases, the Bitcoin futures market is in contango, where longer-dated futures cost more than near-term ones. This forces BITO to sell contracts at a lower price and buy new ones at a higher price, resulting in a negative roll yield that erodes returns over time.
In rarer cases, the market may be in backwardation, where longer-dated futures are cheaper. In such scenarios, the roll process can generate a positive yield and enhance returns.
Because Bitcoin futures tend to remain in contango, BITO often incurs consistent rolling losses. Combined with its 0.95% annual expense ratio, these structural features can significantly drag down performance, especially when compared to holding Bitcoin directly.
Therefore, the fund’s costs compound over time. We should also note that, as a large fund, BITO is likely to face liquidity constraints, which may lead to wider spreads and less efficient pricing.
How BITO Generates Its Monthly Distributions
Unlike traditional dividend-paying ETFs that derive income from stocks or bonds, BITO’s monthly distributions primarily stem from realized gains on futures trading, not from yield-bearing assets.
While BITO has attracted attention for its high current dividend yield, it is not structured as an income-focused product. As a regulated investment company (RIC) under the Investment Company Act of 1940, the fund is required to distribute at least 90% of its taxable income to investors, including short-term capital gains, to maintain its tax status.
This includes profits from trading activities, particularly short-term capital gains from rolling Bitcoin futures contracts. Suppose BITO buys a Bitcoin futures contract at $90,000 and later sells it for $95,000. This $5,000 gain is considered a realized short-term capital gain. If BITO accumulates multiple such profitable trades over the course of a month, the total gains are added up and must be distributed to shareholders, as required by law.
As a result, the amount paid out can vary dramatically from month to month. In fact, as the ProShares website highlights, there may even be months when no distributions are made. The current eye-catching dividend yield of around 62% reflects past performance and the result of the ETF harvesting short-term trading profits, which are then passed on to shareholders in accordance with tax regulations. Therefore, this high yield does not signal a reliable source of income.
Additionally, BITO holds U.S. Treasury bills and cash equivalents as collateral to back its futures positions. While these generate modest interest income, the bulk of the distributions still come from futures trading.
Putting BITO’s High Dividend Yield in Context
BITO’s widely cited high yield is typically calculated by annualizing recent monthly distributions relative to the fund’s current share price. While notable on a trailing basis, this figure reflects past conditions rather than a projection of future income.
A sharp increase in Bitcoin prices, especially in 2023 and 2024, has contributed to the recent payout surge. The ETF has generated substantial cash flow from rolling futures contracts and collateral investments. However, in the future, during potentially bearish or sideways markets, the dividend yield could easily fall, even sharply.
Moreover, there are likely tax considerations for investors. In the US, most of these payouts are taxed as short-term capital gains at ordinary income rates. As a result, the after-tax return can be considerably lower than expected. Long-term investors should ideally consult an authorized investment or tax professional in their legal jurisdictions.
Understanding the futures-trading source of the dividend yield and tax implications is just as important as the current percentage return itself. BITO’s performance and dividend stream may not align with investor expectations based solely on the underlying Bitcoin spot price action.
When BITO May Be Appropriate in a Portfolio
BITO’s high yield is driven by futures market mechanics and is not consistent (monthly) income. However, BITO may still have a place in tactically oriented portfolios of:
- Short-term traders seeking to capitalize on Bitcoin momentum through speculation (i.e., via potentially high-risk trading strategies);
- Experienced options traders using BITO for volatility or hedging strategies;
- Long-term investors who can plan around BITO’s tax implications, such as holding it in a retirement account with a tax advantage that potentially extends decades.
However, BITO is not necessarily appropriate for conservative portfolios or investors relying on consistent income. Individuals should consider their own financial situation and consult with registered advisers, as BITO’s structure and risk profile may not suit all risk/return profiles and portfolios.
The Bottom Line: Know Why You’re Buying the BITO ETF
BITO’s current high dividend yield is not the result of a stable, income-producing strategy; rather, it reflects a futures-based structure that must distribute taxable gains as required by law. These distributions are volatile, tax-heavy, and closely tied to the unpredictable nature of Bitcoin futures trading.
For investors who understand these mechanics, BITO may offer short bursts of income during favorable conditions. But for most income-focused investors, the high yield can be misleading and should not be confused with the regular and dependable dividends offered by traditional income ETFs.
Why is BITO’s dividend so high? Because it distributes realized trading gains, but not because it’s designed to deliver income. The takeaway is simple: the source of BITO’s yield matters more than the number itself. What looks like income is really a function of volatile, short-term trading gains.
Frequently Asked Questions (FAQs) about BITO
- Why is BITO’s dividend yield so high compared to other ETFs?
BITO’s yield comes from short-term capital gains on Bitcoin futures trades. Therefore, it is not a steady source of income. These distributions are required under U.S. law, but they can swing sharply from month to month, making the yield unpredictable and potentially misleading for income-focused investors. - Are BITO’s monthly distributions consistent or predictable?
Not at all. BITO’s payouts depend entirely on realized trading gains from Bitcoin futures. If there’s little profit—or none at all—the fund may skip distributions altogether, making it an unreliable source of steady income. - How do BITO’s holdings compare to holding spot Bitcoin directly?
BITO does not hold actual Bitcoin. Instead, it has exposure to futures contracts. That means its returns can lag behind spot Bitcoin, especially over time, due to trading costs, roll yield, and management fees. Even in a rising market, BITO may not fully capture the upside. - Is BITO a good option for income-focused investors?
Not typically. While the yield may look attractive, the fund is not designed for consistent income. Its payouts are irregular and tied to short-term trading gains and not dividend-producing assets. Investors seeking dependable income should consider traditional dividend ETFs instead. - What are the tax implications of BITO’s high dividend payouts?
Most of BITO’s distributions are taxed as short-term capital gains, often at higher ordinary income rates. After-tax returns may be much lower than the headline yield suggests. - Can BITO’s yield be sustained in a bear market for Bitcoin?
Unlikely. In a bear or flat market, BITO’s trading profits tend to dry up, often slashing distributions or eliminating them entirely. The yield reflects past performance, not a dependable income stream for the future.
Tezcan Gecgil, PhD, has worked in investment management in the U.S. and U.K., including a Greenwich, Connecticut-based hedge fund as well as the American Stock Exchange, CFA Institute, and Bloomberg. She has also taught at various U.S. and U.K. universities.
She holds Ph.D. (Business Studies) as well as MSc (Investment Banking & Trading) and MBA degrees from leading U.S. and U.K. universities and has also completed all three levels of the Chartered Market Technician (CMT) examination.
Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation. Publicly, she has also contributed to investing.com, InvestorPlace and the U.K. website of The Motley Fool.
When not navigating the markets, Tezcan delves into the mysteries of history and explores new destinations. Read Full Bio
