Goldman Sachs Acquires Volatility, Turning Bitcoin into a Revenue Business

Wall Street doesn't need to be bullish on cryptocurrencies; they can still make money from them.

Written by: Thejaswini M A
Compiled by: Luffy, Foresight News

Goldman Sachs has 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 that allows others to buy the asset at an agreed price in the future, collecting a premium upfront. If the asset price skyrockets beyond the strike price, the asset will be delivered at the agreed cap; if the price remains stagnant, the premium collected upfront 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 modest returns using this strategy, while Bitcoin can yield high returns.

Can we once again blame the "big money" for squeezing the last 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 assets under management of $1.11 billion, with a management fee of 0.98%, which is used to cover the operational costs of the fund managers.

This is precisely the product that Goldman Sachs originally intended to build independently; they submitted a related application four months ago. However, instead of building from scratch, they opted to acquire an existing mature entity.

BTCI does not directly custody Bitcoin but buys shares of Bitcoin spot ETFs like BlackRock's IBIT and Fidelity's FBTC. It allocates funds across 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 any gains beyond that limit; 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 plummeting coin price, while missing out on the peak gains during a bull market. It does not serve as insurance against price declines. In exchange, you 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 has seen a net asset value decline of 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 the bear market.

Goldman Sachs has spent approximately $2.25 billion to acquire NEOS in cash and stock. Prior to this, Goldman Sachs already had $40 billion in options-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 Sachs spent $2 billion to acquire Innovator Capital Management. Innovator manages buffered ETFs, which have fixed cycles of one year, simultaneously limiting both upside and downside. Even in a booming market, you cannot exceed the cap on gains; however, the fund can absorb some initial losses, typically 9% or 30%. Essentially, it trades the opportunity for significant upside for protection against substantial losses. At the time of acquisition, the fund managed over $31 billion. Thus, this investment bank's assets relying on selling volatility for income have reached $61 billion.

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

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

On July 24, Fidelity submitted amended documents allowing its $900 million Ethereum ETF (FETH) to stake 100% of ETH. The verification nodes are operated by Blockdaemon, Figment, and Galaxy Digital, with the private keys still held by Fidelity. Of all 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 crypto spot fund investors, with a distribution of $0.083178 per share in January 2026, totaling about $9.4 million. 21Shares initiated staking for its Ethereum fund in October 2025, taking 25% of total rewards while waiving a 0.21% management fee for one year. BlackRock has established an independent product, iShares Staked Ethereum Trust, which is listed 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 plans to stake 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 the high volatility of assets, the collateral discount rate reaches 30%-50%. This means that staking $100,000 in crypto assets can only allow you to borrow a maximum of $50,000-$70,000 in cash. (The collateral discount for U.S. Treasury bonds is only 1%-5%).

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

Bitwise had $15 billion in assets under management in February this year, which fell to $11 billion by April 1, and by August, over 70 products combined had only $9 billion left. 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 fall, the management fees charged based on asset size also shrink. Morgan Stanley has 16,000 financial advisors managing $9.3 trillion in client funds, which can directly push new funds into client portfolios.

Bitwise's response has not been slow, but flexible adjustments cannot offset structural disadvantages. It was the first to attempt to add staking functionality to its Ethereum fund but declared failure in September 2025; a month later, Grayscale succeeded in doing so. BlackRock only initiated related work in March, while 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. Even so, it still faced shrinking scale and layoffs.

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

By adding returns through staking and covered call options, this landscape is changing.

Financial advisors view stable returns as the primary goal for product allocation to 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 a qualified 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 fundamental 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 remains valid today and is likely to continue for some time.

In Goldman Sachs' client presentation in 2020, it was stated that due to high volatility, Bitcoin "does not constitute a viable investment logic." Yet now, it is profiting from the very volatility that Bitcoin has consistently exhibited.

However, the reversal of stance by large institutions is not uncommon. JPMorgan CEO Dimon once called Bitcoin a "pet rock" but has now accepted it as collateral; Vanguard once warned of its toxicity but has launched related ETFs; BlackRock CEO Fink once associated it with money laundering but now operates the world's largest Bitcoin fund. Of course, let's not forget that figure who called for making crypto great again overnight.

Times are changing, and clients have demands, so everyone has completely shelved 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 guaranteed income.

The collateral conditions for crypto asset loans are very stringent. When using Bitcoin as collateral, JPMorgan directly cuts 30%-50% of the credit limit, requiring you to over-collateralize to ensure the bank never bears losses. If Bitcoin's price halves, the loan will begin to show default risk. 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 calculated annually based on the size of the assets held. Options funds make money by selling contracts: even if the underlying crypto asset prices fall, cash flow from fees and options 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 charge management fees based on the size of assets, 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 ample risk diversification.

There exists a critical logical flaw: 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 taking risks. But they have built a mechanism where retail investors bear all directional price risks while institutions secure guaranteed income through fee structures.