Swiss digital asset bank Sygnum has launched a new investment vehicle designed to generate yield on Bitcoin without reducing investors’ exposure to its price movements.

The BTC Alpha Fund, developed in partnership with Athens-based Starboard Digital, uses arbitrage strategies to target net annual returns of 8%-10%, which are paid directly in Bitcoin.

The fund is domiciled in the Cayman Islands and caters to professional and institutional investors. By converting arbitrage gains into bitcoin, participants can increase the number of coins they hold while still benefiting from bitcoin’s long-term price appreciation. Sygnum said the product has already drawn strong interest from clients looking for institutional-grade yield options in digital assets.

The fund comes as institutional investors are looking to go beyond just holding bitcoin in their portfolio and use decentralized finance (DeFi) to generate more income from their BTC holdings. The bitcoin DeFi has gained popularity and has the potential to open up a massive market, according to analysts.

Recently, Binance research noted that only ~0.8% of the bitcoin supply is currently being used in DeFi, implying a potential for a large "untapped opportunity." In fact, last year, Julian Love, a deal analyst at Franklin Templeton Digital Assets, said the opportunity could be as much as $1 trillion.

"Bitcoin has become a key exposure in modern portfolios, and many of our clients want to stay invested while building their positions further," said Markus Hämmerli, who is leading the BTC Alpha Fund offering at Sygnum.

Bitcoin liquidity

For investors, one practical feature is that shares in the new fund can be pledged as collateral for U.S. dollar Lombard loans at Sygnum. This setup allows long-term bitcoin holders to unlock liquidity for other investments without selling down their crypto exposure.

Monthly liquidity and a strict risk management framework are intended to give the fund flexibility while addressing volatility in digital markets. The partnership also leverages Starboard Digital’s background in trading and risk management.

Sygnum has been expanding its bitcoin offerings since launching various initiatives last year. The new fund adds to its growing suite of regulated products aimed at bridging traditional finance and the crypto economy.

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