Summary I aim to build the perfect portfolio and believe Bitcoin deserves a small allocation for its potential returns. The Simplify Bitcoin Strategy PLUS Income ETF (MAXI) fills my needs when it comes to wanting a Bitcoin allocation. It delivers dynamic Bitcoin exposure alongside an options-selling overlay that does not cap Bitcoin's upside. It still yields 30%+. The fund also employs capital efficient building blocks to create a near-100% allocation to T-Bills. MAXI is very unique in this regard, and could outperform in the long run. Investors should heed caution, however, as there are issues like high expenses and the black box nature of their options algorithm that make the fund difficult to explain fully. Introduction In my quest to build the perfect portfolio, I have found a desire to include Bitcoin ( BTC-USD ) exposure, at least in a very small amount. I most recently discussed Bitcoin's place in a portfolio in an article published in December . That article covers my multi-asset portfolio that uses leverage to enhance returns. It was a fun write, and I recommend taking a look if you're curious about how I justify Bitcoin's inclusion. In the pursuit of the "perfect" allocation to Bitcoin, I've stumbled upon several funds that utilize interesting strategies, leveraging the availability of Bitcoin derivatives to create income-producing funds that also offer long exposure to Bitcoin itself. The one that captivated me the most, and that I employ in that portfolio, is the Simplify Bitcoin Strategy PLUS Income ETF (NASDAQ: MAXI ). Over its lifetime, it has performed well, producing significant yield. Its price return since its launch in Q4 2022 is nearly 115%, but its total return (including dividends paid, but not reinvested) is over 310%. Data by YCharts While this doesn't compare to Bitcoin itself, necessarily, the income paid to investors during that time could be worthwhile to many investors. Data by YCharts Consider that its trailing yield is currently almost 32%, and it's fairly impressive to see that it's kept up with long-only exposure. Data by YCharts Strategy The fund works off of several moving parts, which may seem complex at first, but are fairly straightforward as individual components. Here is how Simplify explains it: The Simplify Bitcoin Strategy PLUS Income ETF ( MAXI ) seeks capital gains through an actively managed Bitcoin strategy. A risk-managed options overlay is added to provide income.The Bitcoin exposure will vary between 50% to 200% of the fund’s net assets, based on a proprietary technical model. Exposure may be gained through various instruments, including Bitcoin ETFs, futures, options, or swaps.The options income strategy will focus on selling put spreads on a variety of instruments, including equity indices as well as bond and commodity ETFs.**The fund does not invest in bitcoin directly. Piece One: Treasuries As Collateral The fund first buys treasuries, with effectively 100% of its original NAV. These treasuries are used as collateral to buy Bitcoin exposure through futures, as well as to sell options spreads. This makes the base of the fund look like this: Simplify ETFs Currently, about 90% of assets are tied up in T-Bills. Options and futures are capital efficient, however, meaning that they can be held using existing assets as collateral. This means that the fund maintains its 90-100% allocation to T-Bills no matter what else is does in the fund, since the rest of its operations are all derivative-based. Having the allocation to MAXI in my portfolio contribute to my allocations to Bitcoin, T-Bills, and an options-income strategy was very enticing, and it allows me to do more with less; instead of spreading my allotted allocation across three ETFs doing these. Piece Two: Options Spreads Simplify has several partnerships with hedge funds and other investments advisors, and it's unclear if their options-selling algorithm is entirely in-house or not, but they employ a machine to trade options spreads. They explain it this way: The risk-managed option overlay sells put spreads on a variety of instruments to generate income. This predominantly includes spreads on equity indices as well as on fixed income, commodity, volatility, and currency ETFs and exchange traded products (ETPs), and on Bitcoin futures. This means that their short exposure will be varied, and not tied directly to Bitcoin. That is a positive thing for MAXI investors as it means that the income is not directly tied to the capping of upside on Bitcoin itself, but rather volatility across other instruments that may not correlate with Bitcoin's returns. This is unlike other Bitcoin income funds that cap the upside of Bitcoin in order to generate its income. MAXI, on the other hand, currently has no options spreads on Bitcoin itself, although they do have positions open against Microstrategy ( MSTR ), which trades in great sympathy with Bitcoin. Their options strategy is to open put spreads on various instruments, to take advantage of mispricing opportunities that arise in these assets. It's a black box model, so we can't predict or forecast how the fund will perform on an income front, but here are its total holdings if it helps anybody make sense of their strategy. Simplify ETFs Note that the image above also includes a 7.31% allocation to IBIT calls, which are technically options, but are not part of the options-selling program and are instead part of the next component, the long Bitcoin exposure. Piece Three: Bitcoin Exposure Keeping in mind that IBIT call allocation enhances the exposure to Bitcoin, the fund also keeps a more "traditional" Bitcoin exposure tool, CME futures. Commodities futures are typically what comes to mind when funds use the words "Bitcoin strategy," as it is not technically investing in "physical" Bitcoin. Instead, it's invested in synthetic Bitcoin, which are backed by cash transactions and not the delivery of actual Bitcoins. Simplify ETFs This is not a problem for me, but may be for some folks who want "pure" exposure to Bitcoin without the worry of having to roll futures contracts and deal with the issues that come along with that, namely "carry," or the cost paid for the leverage obtained. That carry is expensive, and costs MAXI over 500bp in fees annually. Simplify ETFs Dynamic Exposure to Bitcoin The keen-eyed among you may have noticed that the total exposure to Bitcoin was about 57% of NAV currently. This is intentionally less than 100%. Let's call back to the original explainer of this strategy for a reminder: The Bitcoin exposure will vary between 50% to 200% of the fund’s net assets, based on a proprietary technical model. Back on December 31st, 2024, Simplify reported MAXI's holdings at over 100% Bitcoin exposure. They have since scaled back, based on their technical readings of the market. Simplify ETFs This model is designed to reduce the volatility from holding Bitcoin. Does it work? In the chart below, we can see that MAXI tends to be more volatile than a "pure" Bitcoin fund like IBIT . This is likely due to the volatility from the options, as well as over-exposure to Bitcoin during drawdowns. The volatility diverged dramatically in December last year, but MAXI's is quickly falling back in line. Data by YCharts Because of the other moving parts of the fund, it's unclear if MAXI has the ability to be less volatile than just owning Bitcoin, since some of these fluctuations could be from the put spreads. This is the most major red flag I see with this fund, is that it is not actually less volatile than owning Bitcoin outright. This strategy has promise, however, as its performance has kept up with Bitcoin over time despite its crazy high yield, over 30%. Suitability MAXI is an interesting fund, and one that I believe has great potential as a high-yield way to own Bitcoin, with performance similar to the asset, while still producing 30%+ in income. There are some red flags, however, such as the high ER from the use of leverage, and the leverage itself. Some investors may be more comfortable owning funds with less "black box" components, or less active management. Volatility is also very high, even higher than Bitcoin outright at times due to the income mechanism. To this end, I am recommending that investors very carefully consider MAXI when including it in a portfolio. Aggressive investors could consider up to a 3% allocation in a diversified portfolio, and moderate investors could consider up to a 1% allocation. Conservative investors are cautioned to stay away from cryptocurrencies entirely, let alone Bitcoin funds that sell options like MAXI. In my own portfolio, it holds a 2.5% allocation. You can check that out here . Conclusion Ultimately, the Simplify Bitcoin Strategy PLUS Income ETF ( MAXI ) has impressed me. While it has black box components that make it difficult to predict and forecast, these also contribute to its potential for outperformance. The fund itself has kept up with Bitcoin's performance while distributing a trailing return of 30%+ in income. This fund may be very appealing to income investors, especially those interested in having Bitcoin exposure. The strategy barbells Bitcoin with T-Bills and adds an aggressive options overlay that does not materially decrease Bitcoin exposure. This means that compared to other Bitcoin income funds, MAXI should receive more of Bitcoin's upside, as it does not cap it for its income returns. In exchange, MAXI can be volatile in ways that Bitcoin isn't, as it sells options on commodities and equities. Investors should heed caution when considering MAXI, and allocate capital appropriately for their risk tolerance, but it earns a buy rating from me as someone who was previously fairly coin-shy. Thanks for reading.
