Stephen McClurg, chief investment officer at Valkyrie Funds, said the Spot Bitcoin exchange-traded fund (ETF) is approaching its first month of operation, but the ETF space could shrink by the end of the year. Stated.
McClurg predicts that only “about seven or eight” of the 10 issuers currently operating will survive.he tells the reason DecryptionThat’s because the operating costs of a Bitcoin spot ETF could become too onerous, especially in a war to lower bottom fees that could hurt profitability for currently struggling issuers. This is true in the midst of competition.
“We have to raise $100 million. [of assets under management] Maybe it’s time to let it go,” McClurg said.
Since the Securities and Exchange Commission approved the first wave of Bitcoin spot ETFs on January 10, capital inflows have been strong. On the first day of trading alone, $4.5 billion was traded, a huge start by any standards. According to the report, there was an additional $400 million inflows in the last day alone. Bloomberg analyst James Seifert says:
Reflecting on the past month, McClurg said market events were largely in line with what Valkyrie expected before its launch.
The exception, McClurg said, is the expected increase in outflows from Grayscale, whose conversion from a trust to an ETF led to a sharp decline in Bitcoin, which fell to less than $41,000 in value before rebounding. But even if this selling pressure eases recently, McClurg expects more outflows to continue and potentially be diversified into other ETFs.
With nine other rivals in the space, including Wall Street heavyweights like BlackRock and Fidelity, Valkyrie faces stiff competition. Since being approved for launch, BlackRock’s iShares Bitcoin ETF and Fidelity Wise Origin Bitcoin Fund have already surpassed $3 billion in assets under management in the last month, and have surpassed Ark Invest’s 21Shares and The Bitwise ETF also received over $700 million in inflows.
With this in mind, McClurg expressed satisfaction with Valkyrie’s performance, noting that Valkyrie outperformed ETFs managed by large issuers, which he said was a significant improvement in his work across digital assets and traditional markets. This reflects the company’s long history. Valkyrie’s assets under management were about $123.7 million as of Feb. 8, much smaller than its larger peers, but McClurg says it’s not about beating them.
“You can’t beat BlackRock and Fidelity. They have a captive market,” McClurg explained. “But going to the next tier, I think we’re doing pretty well.”
Nothing illustrates the competitive nature of ETFs more than the series of fee reductions that occurred before and after their launch. These cuts are intended to attract more investors, but they come with the tradeoff of eating into the ETF’s earnings.
On January 11, Valkyrie set its sponsorship fee at 0.25%, the same as what BlackRock and Fidelity charge. McClurg said this was Valkyrie trying to avoid the unenviable spotlight of being an outlier, but he called the cuts at such an early stage “unfortunate.”
There may be a risk that issuers that are currently behind the curve will find it difficult to maintain these reductions, given the high costs of operating spot ETFs, including security and storage fees. These challenges to profitability support McClurg’s prediction that the size of current issuers is likely to shrink by next year.
“Firstly, I think you’re going to experience the pain of some issuers canceling the Bitcoin Spot ETF because it’s not profitable. Second, they’re never going to make money,” McClurg said. Told.
“If you want to determine who is desperately looking for spot Super Bowl ads for Bitcoin, I think so,” he added.
Edited by Ryan Ozawa.