Spot Bitcoin exchange-traded funds (ETFs) are nearing their first month of operation, with the landscape potentially set for consolidation by the end of 2024, according to Valkyrie Funds’ Chief Investment Officer, Steven McClurg.
In an exclusive interview with Decrypt on Feb. 10, McClurg said he anticipates a reduction in the number of issuers from 10 to “about seven or eight.” He attributes this forecast to the financial burdens associated with running a spot Bitcoin ETF, compounded by a competitive fee-lowering trend that threatens the profitability of struggling issuers. McClurg emphasized the critical asset under management threshold of $100 million as a determinant for an ETF’s viability.
Since the U.S. Securities and Exchange Commission approved the first Bitcoin spot ETFs on Jan. 10, the market response has been robust, with $4.5 billion traded on the first day alone. Recent data shows continued strong inflow, with $400 million reported in a single day, according to Bloomberg analyst James Seyffart.
Reflecting on the past month, McClurg noted that market developments have largely aligned with Valkyrie’s projections. An unexpected event was the less severe than anticipated outflows from Grayscale, which, upon converting from a trust to an ETF, experienced a Bitcoin sell-off, leading to a temporary dip below $41,000. Despite this, McClurg foresees potential for future outflows that could benefit other ETFs.
Valkyrie, alongside heavyweight competitors like BlackRock and Fidelity, is navigating a crowded market. BlackRock’s iShares Bitcoin ETF and Fidelity Wise Origin Bitcoin Fund have surpassed $3 billion in assets under management within a month — overshadowing Valkyrie’s $123.7 million.
Despite the disparity, McClurg remains optimistic about Valkyrie’s performance, particularly against similar-tier competitors, attributing success to the firm’s digital asset expertise and traditional market experience.
The competition among ETFs has led to aggressive fee reductions aimed at attracting investors. Valkyrie aligned its sponsor fee with industry leaders BlackRock and Fidelity at 0.25%, a move McClurg views as necessary, despite his reservations about the timing of such cuts.
He warns that the financial sustainability of running a spot ETF could be jeopardized for issuers who are already underperforming. As a result, some may eventually exit the market due to unprofitability.