Goldman Sachs Buys Volatility, Turning Bitcoin Into a Yield Business
- Core Thesis: Wall Street giants (such as Goldman Sachs, JPMorgan, etc.) are systematically converting crypto assets' high volatility into predictable yields through acquisitions and product innovation. Their business model does not depend on rising token prices; instead, they earn stable fee income by offering structured products (such as covered call ETFs and staking services) to investors who take on price risk.
- Key Elements:
- Goldman Sachs acquired NEOS Investments for $2.25 billion. Its BTCI ETF generates premium income by selling Bitcoin call options, achieving an annualized yield of 27% — but its net asset value has fallen 25.4% this year, highlighting the strategy's trade-off of giving up bull-market upside in exchange for cash flow.
- Goldman Sachs has acquired two options-based ETF firms this year (NEOS and Innovator), managing $61 billion in assets. The total size of derivative income ETFs stands at roughly $180 billion, growing over 70% annually, reflecting explosive growth in this sector.
- Fidelity, Grayscale, BlackRock, and other institutions are racing to introduce staking functionality to Ethereum ETFs, taking 15%-25% of staking rewards as fees — converting underlying asset yields into product cash flow while offloading price risk to holders.
- JPMorgan has launched crypto-backed lending (with 30%-50% haircuts) and structured notes, using over-collateralization and automated risk controls to ensure the bank never bears losses, even in a market downturn, while still collecting interest and fees.
- Native crypto institutions like Bitwise, which rely on AUM-based fees, saw assets shrink 40% during the market decline and were forced to cut staff — underscoring their structural disadvantage in risk resilience compared to diversified Wall Street giants.
- A new U.S. Department of Labor rule creates a safe harbor for allocating crypto assets in 401(k) retirement plans. Yield-generating crypto products could reach pension accounts earlier than spot ETFs, further expanding Wall Street's customer base.
- Goldman Sachs and other giants have publicly been bearish on Bitcoin, yet are now pivoting to profit from its volatility. The core logic is collecting commissions from market trading activity rather than betting on the direction of asset prices.
Original Author: Thejaswini M A
Original Translation: Luffy, Foresight News
Goldman Sachs has agreed to acquire NEOS Investments for up to $2.25 billion. The firm manages 19 options-based income ETFs with total assets of $30 billion.
There is a trading strategy that has existed in traditional finance for as long as options themselves: the covered call. Investors holding an asset, unwilling to wait for uncertain future upside, instead seek immediate cash. They sell a right allowing someone else to buy the asset at an agreed price in the future, collecting a premium upfront. If the asset price surges past the strike price, the asset is delivered at the agreed cap. If the price goes sideways, the upfront premium belongs entirely to the option seller, who can repeat the process next month. Returns depend entirely on the market's expected volatility.
This explains why utility stocks generate meager returns with this strategy, while Bitcoin can deliver substantial yields.
Can we once again blame "big money" for squeezing every last drop of yield from the market? Let's take a closer look.
Volatility Is a Business
BTCI is one of NEOS's many options income ETFs. The fund holds spot Bitcoin products and sells call options against its positions. BTCI currently has $1.11 billion in assets under management with a 0.98% management fee, which covers the fund manager's operating costs.
This is precisely the product Goldman Sachs had intended to build in-house, having filed an application four months ago. Ultimately, instead of building from scratch, it acquired a mature, proven product.
BTCI does not directly custody Bitcoin; rather, it buys shares in spot Bitcoin ETFs like BlackRock's IBIT and Fidelity's FBTC. It allocates capital across 11 different Bitcoin ETFs and sells call options against this exposure. Buyers pay premiums because they are bullish on Bitcoin. If Bitcoin rises, BTCI must sell its shares at the agreed cap, forfeiting any gains above that level. If Bitcoin trades sideways, the shares remain with the fund. In either case, the fund pockets the upfront option premium.
BTCI distributes income to holders monthly. Thanks to Bitcoin's sufficiently high volatility, which generates substantial premiums, the current monthly dividend is $7.75 per share, equivalent to an annualized yield of 27%.
However, holding BTCI still exposes you to losses from price crashes while missing out on the peak of bull market gains. It is not insurance against price declines. In exchange, you receive this 27% yield on an ongoing basis.
NEOS states that the fund's distributions are classified as return of capital, which may include option premiums, dividends, capital gains, and interest. Return of capital can defer taxes and lower the cost basis of holdings. In simple terms, this yield is not entirely net profit from trading—some of it comes from your own principal.
BTCI's net asset value is down 25.4% year-to-date, with a 40.9% drawdown over the past 12 months. The fund's strategy is simple: forgo excess returns in bull markets in exchange for upfront cash flow to weather bear markets.
Goldman Sachs is acquiring NEOS for approximately $2.25 billion in a cash-and-stock deal. Prior to this, Goldman's options ETF assets already totaled $40 billion; after the acquisition, that figure will reach $80 billion, placing it among the top eight institutions globally in this space.
Back in April, Goldman had already spent $2 billion to acquire Innovator Capital Management. Innovator manages buffer ETFs with fixed one-year cycles that cap both upside gains and downside losses. Even if the market surges, you cannot capture gains beyond the cap; but on the other hand, the fund absorbs a portion of initial losses, typically 9% or 30%. Essentially, it trades the opportunity for massive upside for protection against significant downside. At the time of acquisition, the firm managed over $31 billion in assets. This brings the investment bank's total volatility-selling assets to $61 billion.
Derivatives income ETFs total approximately $180 billion in assets, growing at over 70% annually since 2021. July alone saw $7 billion in inflows, with 2026 full-year net inflows reaching $40 billion.
Beyond options, Wall Street is aggressively packaging all forms of crypto-native yield, stripping cash flow away from the price risk of underlying assets.
On July 24, Fidelity filed an amendment allowing its $900 million Ethereum ETF (FETH) to stake 100% of its ETH. Validator nodes are operated by Blockdaemon, Figment, and Galaxy Digital, with private keys remaining under Fidelity's custody. Of all staking rewards generated, Fidelity, partners, and node operators collectively take 15%, with the remaining 85% distributed quarterly to fund holders.
Grayscale is the first institution in the US to distribute staking yields to crypto spot fund investors, paying $0.083178 per share in January 2026, totaling approximately $9.4 million. 21Shares began staking for its Ethereum fund in October 2025, taking 25% of total rewards while waiving the 0.21% management fee for one year. BlackRock, meanwhile, established a separate product, the iShares Staked Ethereum Trust, listed on Nasdaq.
Morgan Stanley's Ethereum and Solana trust products launched on NYSE Arca on July 28, with a 0.14% management fee. Approximately 95% of returns are distributed to investors in monthly cash payments. MSSE stakes 50–80% of its ETH with an 80% staking cap; MSOL plans to stake all of its SOL.
In March 2026, JPMorgan's Kinexys platform opened its doors to institutions, allowing Bitcoin and Ethereum to be used as collateral for US dollar loans. Due to high asset volatility, the collateral haircut ranges from 30%–50%. In other words, staking $100,000 in crypto assets yields at most $50,000–$70,000 in cash. (US Treasury collateral, by contrast, carries a haircut of just 1%–5%.)
JPMorgan has also filed for Bitcoin-linked structured notes tied to BlackRock's IBIT, offering up to 1.5x leveraged returns, but with a cap of approximately 16% on gains if certain conditions are met before December 2026. Traditional giants reliably collect fixed fees and structural protections—but when the market turns downward, who exactly bears the losses?
Bitwise had $15 billion in client AUM in February, slipped to $11 billion by April 1, and by August, its 70-plus products had shrunk to just $9 billion combined. The flagship index fund BITW saw net asset outflows of 31% within seven months. Last week, the company announced layoffs, reducing headcount from 180 in February to 155.
As asset prices fall, management fees based on AUM shrink accordingly. Morgan Stanley has 16,000 financial advisors managing $9.3 trillion in client assets, allowing it to push new funds directly into client portfolios.
Bitwise's response wasn't slow, but agility couldn't offset its structural disadvantages. It was the first to attempt adding staking to its Ethereum fund, but failed in September 2025; a month later, Grayscale succeeded. BlackRock didn't start until March, and Fidelity waited until July. Bitwise even acquired Chorus One in February, securing $2.2 billion in staked assets covering validator nodes across roughly 30 proof-of-stake networks; in April, it launched an Avalanche spot product with built-in staking. Even so, it still faced shrinking AUM and layoffs.
In early June 2026, US spot Bitcoin ETFs experienced their largest outflow since inception. Late-May employment data exceeded expectations, pushing back rate-cut expectations, keeping 10-year Treasury yields elevated, and driving investors to flood into bonds. When traditional assets offer attractive returns, assets like Bitcoin that generate no inherent yield lose their appeal. Bitcoin's profitability relies entirely on price appreciation.
Adding yield to crypto assets through staking and covered calls is changing this dynamic.
Financial advisors view stable income as the primary goal when allocating products to clients. On March 30, the US Department of Labor proposed new rules establishing a safe harbor provision for fiduciaries allocating alternative assets—including crypto—within 401(k) retirement plans. Such plans have historically avoided alternative assets due to legal liability risks. If the new rules take effect, yield-generating crypto products could enter retirement accounts even earlier than plain crypto spot ETFs, given that 401(k) product pools prioritize predictable cash income.
Goldman Sachs Wealth Management Chief Investment Officer Sharmin Mossavar-Rahmani said in January last year, "We have always believed it doesn't qualify as a legitimate investment asset. Think about it—it generates no cash flow, has no earnings, provides no portfolio diversification, and doesn't reduce volatility. You can list a whole host of reasons. So it still doesn't count as an investment asset—it's merely a speculative trading vehicle. If people want to speculate, that's their choice. But we don't recommend it, because you have no way to determine whether the current price is reasonable, nor can you truly value it."
You Don't Have to Be Bullish on Crypto to Make Money from It
Since then, Bitcoin hasn't fundamentally changed: it still generates no cash flow or profits, its price is down 49% from its highs, and it hasn't provided volatility dampening either. Sharmin's assessment holds true today and will likely continue to for some time.
In Goldman Sachs' 2020 client presentation, it stated that due to high volatility, Bitcoin "does not constitute a viable investment thesis." Today, however, it profits from Bitcoin's persistent volatility.
But institutional flip-flops are nothing new. JPMorgan CEO Dimon once called Bitcoin a "pet rock," yet now accepts it as collateral; Vanguard once warned it was toxic, and now offers related ETFs; BlackRock CEO Fink once associated it with money laundering, and now operates the world's largest Bitcoin fund. And of course, let's not forget the figure who overnight began championing making crypto great again.
Times change, clients have demands, and so philosophical debates are shelved entirely. But the key point is that their business doesn't need prices to rise. They are betting on trading activity in the crypto market, not the direction of asset prices. Without direction-neutral market makers and structured lending institutions providing liquidity, the entire market would collapse. They provide essential services while collecting toll fees; faithful investors bear the price risk, while institutions take guaranteed returns through fee structures.
Collateral requirements for crypto lending are stringent. When using Bitcoin as collateral, JPMorgan applies a 30%–50% haircut, requiring over-collateralization to ensure the bank never bears losses. Only if Bitcoin's price were to halve would the loan begin to face default risk. Automated price oracles continuously monitor the market, triggering margin calls when prices fall. Throughout this bear market, banks have remained fully protected, collecting interest without interruption.
Traditional investment funds charge fixed annual management fees. Morgan Stanley's 0.14% fee is assessed annually based on assets under management. Options-based funds earn from selling contracts: even if underlying crypto asset prices decline, cash flow from fees and option contracts continues unabated.
Native crypto institutions, by contrast, are entirely tied to market sentiment. When Bitcoin or other tokens crash, investors panic and redeem fund shares to cut losses. Since crypto institutions charge management fees based on AUM, redemptions directly shrink fund size and immediately reduce corporate revenue. Wall Street institutions, meanwhile, manage trillions of dollars across bonds, cash, equities, and commodities, allowing ample risk diversification.
Herein lies a critical logical gap: Wall Street doesn't even need to be bullish on the industry's future to conquer it. If you believe in the industry's prospects, you must take directional bets, and directional bets require risk-taking. But they've built a mechanism where retail investors bear all directional price risk, while institutions capture guaranteed returns through fee structures.
