A spot Bitcoin exchange-traded fund (ETF) is nearing its first month of operation, with consolidation likely expected by the end of 2024, according to Steven McClurg, chief investment officer at Valkyrie Funds.
McClurg said in an exclusive interview with Decrypt on February 10 that he expects the number of issuers to drop from 10 to “about seven or eight.” He attributes this prediction to the financial burden associated with operating spot Bitcoin ETFs and the trend of competitive fee reductions that threaten the profitability of struggling issuers. McClurg highlighted a critical asset base of $100 million under management as a factor in determining the ETF’s viability.
After the U.S. Securities and Exchange Commission approved the first Bitcoin spot ETF on January 10, market reaction was strong, with $4.5 billion traded on the first day alone. Recent data shows continued strong inflows, with $400 million reported per day, according to Bloomberg analyst James Seyffart.
Looking back over the past month, McClurg noted that market developments were largely consistent with Valkyrie’s predictions. An unexpected event was a less severe outflow than expected from Grayscale, which experienced a Bitcoin sell-off when converting from a trust to an ETF, temporarily sending it below $41,000. Nonetheless, McClurg predicts possible future outflows that could benefit other ETFs.
Valkyrie is navigating a crowded market with heavyweight competitors like BlackRock and Fidelity. BlackRock’s iShares Bitcoin ETF and Fidelity Wise Origin Bitcoin Fund surpassed $3 billion in assets under management in one month, surpassing Valkyrie’s $123.7 million.
Despite these gaps, McClurg remains optimistic about Valkyrie’s performance, especially against similar-tier competitors, and believes the company’s digital asset expertise and traditional market experience are factors in its success.
Competition among ETFs has led to aggressive fee cuts to attract investors. Valkyrie has aligned its sponsor fee with industry leaders BlackRock and Fidelity to 0.25%. Despite doubts about the timing of such cuts, McClurg believes they are necessary.
He warns that the financial sustainability of cash ETF operations could be at risk for issuers that are already underperforming. As a result, some may become unprofitable and eventually be taken out of the market.