Goldman Sachs buys volatility, turning Bitcoin into a profit business

Original Title: Yield-Industrial Complex

Original Author: Thejaswini M A

Original Compilation: Luffy, Foresight News

Goldman Sachs agreed to invest up to $2.25 billion to acquire NEOS Investments, which manages 19 option-based income ETFs with a total scale of $30 billion.

There is a trading strategy that has long existed in traditional finance since the inception of options: covered call options. Investors holding assets, who do not want to wait for uncertain future gains, prefer to receive cash immediately. Thus, they sell a right, allowing others to buy the asset at an agreed price in the future, and collect a premium in advance. If the asset price skyrockets beyond the strike price, the asset will be delivered at the agreed cap; if the price remains stagnant, the collected premium belongs entirely to the option seller, who can continue to sell options next month. The returns depend entirely on the market's expected volatility.

This explains why utility stocks can only generate meager returns with this strategy, while Bitcoin can yield high returns.

Can we again blame "big money" for squeezing the remaining profits from the market? Let's take a look.

Volatility is a Business

BTCI is one of the many option income ETFs under NEOS. This fund holds Bitcoin spot products and sells call options against its holdings. Currently, BTCI has an asset management scale of $1.11 billion, with a management fee of 0.98%, which is used to cover the operational costs of the fund manager.

This was precisely the product Goldman Sachs originally intended to build independently, having submitted a related application four months ago. However, it did not build from scratch but instead acquired a ready-made mature target.

BTCI does not directly custody Bitcoin but buys shares of Bitcoin spot ETFs like BlackRock's IBIT and Fidelity's FBTC. It allocates funds among 11 different Bitcoin ETFs and sells call options against this exposure. Buyers, optimistic about Bitcoin's rise, are willing to pay premiums for the options. If Bitcoin rises, BTCI must sell shares at the agreed cap, foregoing the portion of the increase beyond that cap; if Bitcoin's price remains stagnant, the shares still belong to the fund. In either case, the fund can pocket the upfront option premiums.

BTCI distributes earnings to fund holders every month. Due to Bitcoin's high volatility, it can generate substantial premiums, currently yielding $7.75 per share monthly, equivalent to an annualized return of 27%.

However, holding BTCI still exposes you to losses from a sharp decline in coin prices, while missing out on the peak gains of a bull market. It is not insurance against price drops. In exchange, you will continuously receive this 27% return.

NEOS states that the fund's dividends are classified as capital returns, which may include option premiums, dividends, capital gains, and interest. Capital returns can defer taxes and reduce the cost basis of holdings. In simple terms, this income is not entirely derived from trading profits; part of it comes from your principal.

BTCI's net asset value has declined by 25.4% this year, with a 12-month drawdown of 40.9%. The fund's trading logic is to forgo excess gains in a bull market in exchange for upfront cash flow to survive a bear market.

Goldman Sachs spent approximately $2.25 billion to acquire NEOS in cash and stock. Prior to this, Goldman Sachs already had $40 billion in option-based ETFs; after completing this acquisition, the scale will reach $80 billion, making it the eighth largest institution in this field globally.

As early as April this year, Goldman had already spent $2 billion to acquire Innovator Capital Management. Innovator manages buffered ETFs, with products fixed for one year, limiting both upside gains and downside losses during the cycle. Even if the market surges, you cannot receive returns exceeding the cap; on the other hand, the fund can absorb part of the initial losses, usually 9% or 30%. Essentially, it trades the opportunity for significant upside for protection against substantial losses. At the time of acquisition, the fund's management scale exceeded $31 billion. Thus, this investment bank's assets relying on selling volatility for income reached $61 billion.

The total scale of derivative income ETFs is approximately $180 billion, with an annual growth rate exceeding 70% since 2021. In July alone, $7 billion flowed in, with a total net inflow of $40 billion expected for the entire year of 2026.

Not only options, but Wall Street is actively packaging all crypto-native income, stripping cash flow from the price risks of underlying assets.

On July 24, Fidelity submitted a revised document allowing its $900 million Ethereum ETF (FETH) to stake 100% of its ETH. The validation nodes are operated by Blockdaemon, Figment, and Galaxy Digital, while the private keys are still held by Fidelity. Of all the rewards generated from staking, Fidelity, its partners, and node operators collectively take 15%, with the remaining 85% distributed quarterly to fund holders.

Grayscale is the first institution in the U.S. to distribute staking rewards to investors in crypto spot funds, distributing $0.083178 per share in January 2026, totaling about $9.4 million. 21Shares launched staking for its Ethereum fund in October 2025, taking 25% of total rewards while waiving a 0.21% management fee for one year. BlackRock established an independent product, iShares Staked Ethereum Trust, and listed it on Nasdaq.

Morgan Stanley's Ethereum and Solana trust products were listed on the NYSE Arca on July 28, with a management fee of 0.14%. About 95% of the returns are distributed to investors in monthly cash. MSSE stakes 50-80% of ETH, setting an 80% staking cap; MSOL plans to stake all SOL.

In March 2026, JPMorgan's Kinexys platform opened services to institutions, allowing them to borrow USD loans using Bitcoin and Ethereum as collateral. Due to high asset volatility, the collateral discount rate reaches 30%-50%. This means that staking $100,000 in crypto assets can only yield a loan of $50,000 to $70,000 in cash. (The collateral discount for U.S. Treasuries is only 1%-5%.)

JPMorgan also filed for structured notes linked to Bitcoin tied to BlackRock's IBIT, offering up to 1.5 times leveraged returns, but with a cap of about 16% if the agreed conditions are met before December 2026. Traditional giants steadily take certain fees and structural protections; but when the market turns downward, who ultimately bears the losses?

Bitwise had a client asset management scale of $15 billion in February this year, which fell to $11 billion by April 1, and by August, over 70 products combined to only $9 billion. The flagship index fund BITW lost 31% of its net assets in seven months. Last week, the company announced layoffs, reducing its workforce from 180 in February to 155.

As asset prices decline, the management fees based on asset scale also shrink. Morgan Stanley has 16,000 financial advisors managing $9.3 trillion in client funds, allowing them to directly push new funds into client portfolios.

Bitwise's response was not slow, but flexible adjustments cannot offset structural disadvantages. It was the first to attempt to add staking features to its Ethereum fund but declared failure in September 2025; a month later, Grayscale succeeded in doing so. BlackRock did not start related work until March, and Fidelity waited until July. Bitwise even acquired Chorus One in February, securing $2.2 billion in staking assets covering about 30 proof-of-stake networks' validation nodes; in April, it launched a spot product with internal staking functionality for Avalanche. Even so, it still faced scale shrinkage and layoffs.

In early June 2026, the largest outflow of funds occurred since the listing of U.S. Bitcoin spot ETFs. At the end of May, employment data exceeded expectations, pushing back market rate cut expectations, and the yield on ten-year U.S. Treasuries remained high, leading to a massive influx of investor funds into bonds. When traditional assets can provide considerable returns, the appeal of assets like Bitcoin, which do not generate income, diminishes. Bitcoin's profitability relies entirely on price increases.

Overlaying returns on crypto assets through staking and covered call options is changing this landscape.

Financial advisors view stable returns as the primary goal for product allocation for clients. On March 30, the U.S. Department of Labor proposed new regulations establishing safe harbor provisions for fiduciaries to allocate alternative assets (including crypto assets) in 401(k) retirement plans. Due to legal liability risks, such plans have historically avoided alternative assets. If the new regulations are implemented, income-generating crypto products may enter retirement accounts even earlier than pure crypto spot ETFs, as 401(k) product pools prioritize predictable cash income.

Sharmin Mossavar-Rahmani, Chief Investment Officer of Goldman Sachs Wealth Management, stated in January last year, "We have always believed it does not qualify as an eligible investment asset. Think about it carefully; it does not generate cash flow, has no profits, cannot achieve portfolio diversification, and cannot reduce volatility. You can list a whole bunch of reasons. So it still does not count as an investment asset; it is merely a speculative trading target. If people want to speculate, let them. But we do not recommend it because you cannot judge whether the current price is reasonable, nor can you give it a true valuation."

You Don't Have to Be Bullish on Cryptocurrencies to Make Money from Them

Since then, Bitcoin has not undergone any essential changes: it still does not generate cash flow or profits, and its price has dropped 49% from its peak, failing to stabilize volatility. Sharmin's assertion still holds true today and is likely to continue for some time.

Goldman Sachs' client presentation in 2020 also stated: Due to high volatility, Bitcoin "does not constitute a viable investment logic." Yet now, it profits from the persistent volatility of Bitcoin.

However, the reversal of positions by large institutions is no longer surprising. JPMorgan CEO Dimon once called Bitcoin a "pet rock," but now accepts it as collateral; Vanguard once warned it was toxic, yet has launched related ETFs; BlackRock CEO Fink once linked it to money laundering, but now operates the world's largest Bitcoin fund. Of course, let’s not forget that figure who shouted to make crypto great again overnight.

Times are changing, and clients have demands, so everyone has completely set aside philosophical debates. But the key is that their business does not require the price of coins to rise. They are betting on the trading activity of the crypto market, not the price direction of the assets themselves. Without direction-neutral market makers and structured lending institutions providing liquidity, the entire market would collapse. They provide critical services while extracting channel fees; the price risk is borne by believers, while institutions rely on fees for certain income.

The collateral conditions for crypto asset loans are very strict. When using Bitcoin as collateral, JPMorgan directly cuts the credit limit by 30%-50%, requiring you to over-collateralize to ensure the bank never bears losses. A halving in Bitcoin's price only then begins to pose a risk of default on the loan. Automated price data sources continuously monitor the market; a price drop triggers a margin call notification. Throughout this bear market, banks have been fully protected, collecting interest without fail.

Traditional investment funds charge fixed annual management fees. Morgan Stanley's 0.14% fee is accrued annually based on the asset scale held. Option-based funds earn money by selling contracts: even if the underlying crypto asset prices drop, cash flow from fees and option contracts continues to flow in.

Native crypto institutions are entirely tied to market sentiment. When Bitcoin or other tokens plummet, investors panic and redeem funds to cut losses. Since crypto institutions' management fees are based on the management scale, fund redemptions directly compress the fund size, immediately reducing corporate revenue. In contrast, Wall Street institutions manage trillions of dollars in bonds, cash, stocks, and commodities, allowing for adequate risk diversification.

There is a critical logical flaw here: Wall Street does not even need to be optimistic about the future of this industry to conquer it. If you believe in the industry's prospects, you must bet on direction, and betting on direction entails risk. But they have built a mechanism where retail investors bear all directional price risks, while institutions secure certain income through fee structures.