Afraid of DeFi? Here's how to earn 41% APY on Bitcoin without wrapping it

Bitcoin investors who wanted a piece of the action managed to participate in DeFi yield farming by converting their BTC into tokenized formats like Wrapped BTC and renBTC. This allows BTC holders to interact with all of the ERC-20-based tokens, but some analysts question how decentralized the Bitcoin custody is behind those offerings; therefore, it makes sense to explore more centralized solutions.

Centralized services such as Bitfinex, Poloniex, BlockFi, and Nexo will typically yield 5% to 10% per year for BTC and stablecoin deposits.

The buyer of a call option can acquire Bitcoin for a fixed price on a set future date.

The above chart represents a covered call strategy for the November expiry, yielding a 6% return in two months, equivalent to 41% APY. As previously mentioned, the covered call might present losses if the BTC price at expiry is lower than the strategy threshold level.

Although the 6% yield achieved by selling 0.5 BTC at $9K and 0.5 BTC $10K call options, the strategy needs BTC to sustain above $10K at the November 27 expiry to achieve its full return.

By selling these call options, the investors will make 0.1665 BTC; therefore, the covered call investor should acquire the remaining 0.8335 BTC either via futures regular spot markets.

A 25% APY return can be achieved by selling 0.5 BTC $8K and 0.5 BTC $9K November call options.

The call options premium will raise the remaining BTC 0.303, but only the option seller gets paid beforehand.

As Skew data shows, the BTC 3-month options implied volatility currently stands at a 59% annualized basis.

DeFi might have its appeal, and even if one is willing to accept the risks associated with wrapped BTC, there are unknowns from faulty smart contracts, potential DeFi protocol breaches, clogs in the Ethereum network during peak traffic and the increased fees which can reduce profits and amplify losses.