Summary The Nicholas Crypto Income ETF delivers high income with a 36% estimated annualized distribution rate, paid monthly. BLOX's total return, including dividends, has outpaced the S&P 500 over the recent period despite share price volatility. The ETF focuses on Bitcoin and Ethereum, supplemented by common equities and an active option-writing strategy to generate income. Active management allows BLOX to adjust option exposure based on market conditions, balancing upside potential and risk. Overview When I previously covered the Nicholas Crypto Income ETF ( BLOX ), I issued a buy rating due to the high-income potential and underlying structure. Since then, the fund's share price has risen alongside the rest of the market and is now up nearly 14%. When including all dividends paid, BLOX's total return has outpaced the returns of the S&P 500 Index ( SPX ) over the same time frame. After observing many different high-yield crypto-focused assets over the last few months, I wanted to revisit BLOX to highlight the reasons why this ETF stands out amongst the crowd. Crypto is slowly becoming more widely accepted across markets, but there are still plenty of investors scared to get exposure to the sector. However, I think that BLOX is a great way to get some introductory exposure to crypto, especially since the fund avoids the smaller-cap cryptos. BLOX focuses on Bitcoin and Ethereum, which have tons of institutional backing that is likely to increase over the next decade. Looking at the performance over the last twelve months, we can see that BLOX's share price has declined by approximately 13.6%. However, the total return jumps up to 14.8% when including all distributions that were paid out to shareholders over the same time frame. The main appeal of BLOX is the fact that it now offers investors an estimated annualized distribution rate of 36%, while issuing those payouts on a weekly basis. Data by YCharts As you already know, the crypto sector can be extremely volatile and reactive to macroeconomic influences. Furthermore, the value of Bitcoin and Ethereum can be difficult to estimate over time since there is no way to immediately measure its outlook. The forecasts for these cryptos are typically rooted in speculation, which tends to scare many investors away. However, this is offset by BLOX's inclusion of common equities that are much less speculative in nature. This blend creates a dynamic that makes BLOX a more straightforward buy-and-hold position for investors that want a reduced risk profile in the sector. Fund Strategy and Tradeoffs According to the latest fund overview , BLOX has total net assets of $298 million that are spread across approximately 87 holdings at this time. There aren't any equities that can possibly support a high dividend yield of 36%, so in order to generate amplified income levels, the fund utilizes an option writing strategy against its own holdings in order to generate option premiums. The premiums are then used to support the generous distributions being paid out. Therefore, investors need to understand that the inclusion of an option strategy has some clear tradeoffs, consisting of the following: Capital appreciation is limited to the selected strike price. Higher operating cost for BLOX: expense ratio is 0.99%. Potential NAV erosion during downturns. Instead of using a traditional covered call strategy, BLOX sells call spreads. This means they buy a call option while also simultaneously selling another at a higher price. This layered approach basically allows BLOX to capture option premiums, while still seeing some upside growth of its holdings. This is an advantage over funds that implement a straightforward, single-layered covered call strategy. When looking at the holdings of the fund, we can see that BLOX is most heavily allocated to the Nicholas Bitcoin and Treasuries AfterDark ETF ( NGHT ) at 8.9% of assets. This allocation to treasuries is how BLOX maintains its liquidity to ensure that it has collateral to support the option strategies. BLOX also gets direct exposure to Bitcoin and Ethereum through ETFs, including: VanEck Bitcoin ETF ( HODL ) iShares Ethereum Trust ETF ( ETHA ) NicholasX Furthermore, BLOX provides direct exposure to some notable names that have operations based around the crypto sector. For instance, this includes exposure to companies like HUT 8 Corp. ( HUT ), Riot Platforms, Inc. ( RIOT ), Galaxy Digital Inc. ( GLXY ), and IREN Limited ( IREN ), just to name a few. Another standout feature of BLOX is the fact the fund is actively managed. This allows management to tweak how frequently it writes options based on market conditions. So during strong bull markets, the fund may write fewer options or set wider spreads. Conversely, the fund may write more options with tighter spreads during choppy markets or declines. This process is to strike a balance between limiting captured upside gains while maximizing the premiums collected. Since BLOX is still relatively new, the operating history is short and this may be skewing the performance of the fund. Measuring BLOX's total return since inception, it has outperformed the underlying movement of Bitcoin ( BTC-USD ) over the same time frame. However, this can only be attributed to the recent downturn in the crypto market. Data by YCharts Once conditions shift and we see renewed buying activity across the crypto markets, we may see the dynamic shift. In a rapidly increasing environment, BLOX is likely to underperform over time due to the capped nature of its upside growth. So if you are a Bitcoin bull, it would actually make more sense to directly own Bitcoin with your portfolio. BLOX is more fitting for you if you're generally bullish on the outlook of technology surrounding crypto markets. Semiconductors Offset Crypto Concentration One of the challenges of these sorts of high-yield assets is the threat of NAV erosion. The reality is that the fund may not always generate premiums that can support the large payouts. During these periods, the fund will have to dip into its own NAV to fund those payouts. When you combine this vulnerability with the capped upside nature of the option writing strategy, it is very unusual for these sorts of high-yield funds to recover from rapid downturns. However, BLOX's strategy stands out amongst the pack because of the greater diversity. For instance, we can see how BLOX's share price has held up better compared to alternatives like: YieldMax Crypto Industry & Tech Port Opt Inc ETF ( LFGY ) Roundhill Bitcoin Covered Call Strategy ETF ( YBTC ) Roundhill Ether Covered Call Strategy ETF ( YETH ) Data by YCharts I believe that this can be attributed to BLOX's inclusion of high-quality semiconductor companies. The fund is essentially exposing investors to the blockchain infrastructure by establishing a large portion of its assets in the global semiconductor companies with strong revenue sources. While a lot of its holdings are admittedly reliant on a favorable rise in Bitcoin, there are also many positions whose earnings growth is not correlated to the crypto market. With the growing demand for AI, the market size of the semiconductor industry is likely to continue expanding. For instance, Grand View Research estimates that the size of the semiconductor manufacturing equipment market can grow to $224.9 billion by 2033. From the current market value of around $128.1 billion, this represents a potential CAGR (compound annual growth rate) of 8.4%. After reviewing BLOX's full list of holdings, I was able to locate several positions that are already capitalizing on the rising demands across the AI market: Taiwan Semiconductor Manufacturing Company Limited ( TSM ): Management raised the 2026 outlook following surging AI demand. Revenue is expected to land between $39 and $40.2 billion for the second quarter. NVIDIA Corporation ( NVDA ): Working with Dell Technologies Inc. ( DELL ) to expand AI factories to provide enterprises with production-ready AI agents that can eventually scale. Cipher Digital Inc. ( CIFR ): seeing increased revenues and scaled operations to 907 megawatts of operating and contracted capacity. This is supported by 3 signed data center campus leases. Grand View Research So even if the crypto market experiences a downturn, BLOX is supported by real businesses with great upside potential that is uncorrelated to crypto. BLOX's strategy means that the fund can efficiently harness the volatility and future growth of the AI market, which can be great for investors that are optimistic about the outlook of the sector. While the technology exposure offsets crypto, the fund is still quite concentrated. So if we ever experience a downturn in either of these markets, BLOX can rapidly erode an investor's capital. Outlook Looking forward, I believe that BLOX remains a buy today because of its ability to provide a unique blended exposure to the crypto market. We still have uncertainty around AI, existing geopolitical tensions, rising inflation, and a shifting labor market. With that being said, the near-term cycle of the crypto market is uncertain. If the crypto and technology markets remain rangebound, BLOX is a great way to print cash flow and act as a hedge. BLOX's ability to generate income from its positions makes it my preferred choice to get exposure to crypto at this time. Option premiums are likely to remain high due to the rising threat of AI. The irony is that even though AI can rapidly increase earnings, it has also created a volatile environment where the earnings growth of companies is in question, which is what drove the SaaS-apocalypse through the first quarter of the year. An environment of elevated volatility can lead to higher option premiums collected, which can actually serve as a slight buffer to downside risks. Conversely, a turnaround in the crypto market can also be a good thing for BLOX. The fund's decision to directly hold equities means that BLOX can partially participate in this upside. Rising momentum across crypto and the technology markets can also translate to capital appreciation and higher payouts for BLOX investors as well. Dividend Wheel Strategy One of the most attractive aspects of BLOX is the weekly payout frequency. However, investors need to be aware that the payouts are likely to stay variable week over week. This is because payouts are directly influenced by the success of BLOX's option writing strategy, the overall momentum of the market and BLOX's holdings, and the volatility levels of the market. Therefore, it isn't realistic for payouts to remain within a tight range over time. Furthermore, there's a big risk that payouts will substantially decline over time if the NAV fails to grow. So if market indices or the crypto market declines, BLOX's NAV will also decline. This dynamic means that management has to actively reduce its payouts to protect the underlying NAV, which is why we can see that payouts have trended downward during the pullback experienced at the height of the Iran conflict. As the markets recovered over the last week, payouts have also recovered a bit higher. So when times are good, BLOX may reward you with higher payouts. Conversely, BLOX will have to reduce payouts when times are bad. Seeking Alpha With a dividend yield as high as 36%, the fund offers some creative utility for investors. I personally implement a dividend wheel strategy from my weekly paying funds and I think this strategy works well with BLOX. Since BLOX is frequently issuing distributions, this means that investors always have capital that can be reinvested into other areas of their portfolio. Since high yield funds like this are prone to NAV erosion, it makes sense to manually reinvest those distributions into more traditional growth ETFs or positions. I personally choose to reinvest distributions into hand-picked stocks that I determine to be undervalued. However, it would be efficient to reinvest distributions into ETFs that simply track the indices. This way, you are actively fueling growth positions without using your own capital over time. The growth positions can also offset any NAV erosion that is experienced by holding BLOX over time. The good thing about using the dividend wheel strategy with BLOX is that some distributions have favorable tax treatment. For instance, the latest available Section 19(a) notice indicates that 65.76% of distributions paid YTD were classified as return of capital distributions. Return of capital distributions aren't classified as income and therefore aren't taxed as such. Instead, these distributions will reduce an investor's cost basis and allow taxes to be deferred until the time of sale. BLOX Section 19 (a) Notice However, this doesn't necessarily mean that all distributions will be tax free. Roughly 34.24% of distributions paid YTD were classified as net investment income, which is still taxed as ordinary income for investors. So although investors won't be paying taxes on all distributions collected, there should still be some expectation of taxes over time. The payout methods can also shift under different market conditions. There's always the risk that by the end of the year BLOX's percentage of net investment income can substantially increase. Takeaway In conclusion, I maintain my buy rating on BLOX at this time. The fund's performance holds up strong relative to the overall crypto market and the price of Bitcoin. I know that some investors have a low-risk tolerance when it comes to the crypto market, so I think that BLOX is a great introductory fund for investors that want some exposure without the full concentration. BLOX's decision to provide exposure to businesses with strong earnings growth in addition to the speculative crypto bets, has aligned the fund's success to be less correlated to the price of Bitcoin. The weekly distributions allow investors to implement a dividend wheel strategy as well.
