How gold and bitcoin are moving beyond market hedge to become income-generating investments

Some financial advisors have made the case that as the 60-40 portfolio fails to provide investors what it had in previous decades, larger allocations will be going to cryptocurrencies.

In terms of investor adoption, these ETFs remain relatively small. And compared to the traditional exposure to these alternatives, it's not even close.

The Simplify Bitcoin Strategy PLUS Income ETF has a little over $51 million in assets under management, according to VettaFi. The iShares Bitcoin Trust ETF (IBIT), which is its largest holding (about 83% of the fund), has roughly $85 billion in assets.

YGLD has approximately $44 million in assets, according to VettaFi. Traditional gold ETFs remain far larger. SPDR Gold Trust (GLD), for example, has approximately $120 billion in assets under management, according to VettaFi, while SPDR Gold Mini Shares Trust manages over $20 billion in assets.

NEOS Investments' NEOS Gold High Income ETF (IAUI) also aims to offer monthly income by combining exposure to gold with enhanced returns from selling covered call options. IAUI has assets of over $115 million, according to VettaFi.

Still, Rosenbluth said the approach is an indication that investors are rethinking portfolio construction. BlackRock's decision to offer an ETF in the bitcoin income space will only serve to further confirm there is interest in the market in finding new ways to invest in these alternatives.

Gold has long been treated as a safe haven while bitcoin has been used as a risky diversifier. Adding income overlays changes those roles, Rosenbluth said, but caters to the growing demand. The income overlay can blunt performance qualities that make gold attractive, and cap the return upside that draws investors to bitcoin. However, Rosenbluth said it may appeal to some investors, particularly retail investors seeking high yields.

"When you see a high level of income kicking off a strategy, that's what captures investors attention, especially at the retail level," Nardini said on "ETF Edge."

The income approach, using covered call options, has exploded in popularity in the ETF space outside the gold and bitcoin context, with equity income funds like JPMorgan's JEPI leading a new approach to stock investing, while other new ETFs are combining exposure to a select group of stocks, such as Warren Buffett's picks, with an income payment, or the portfolio of Bill Ackman with a similar income component.

Rosenbluth added that bringing these strategies into an ETF structure reflects the growing adoption of ETFs as a go-to approach to market exposures. "I think there's just an ease of use. It's a more efficient way of accessing the market and using ETFs as the vehicle to do so," Rosenbluth said.