The Spot Bitcoin exchange-traded fund (ETF) is nearing its first month of operation and could see consolidation by the end of 2024, according to Stephen McClurg, chief investment officer at Valkyrie Funds.
In an exclusive interview with Decrypt on February 10, McClurg said he expects the number of issuers to drop from 10 to “about seven or eight.” He attributed this prediction to the financial burden of operating a spot bitcoin ETF, as well as the competitive fee-cutting trend that threatens the profitability of struggling issuers. McClurg highlighted a key measure of assets under management, $100 million, as a determinant of the ETF’s viability.
Since the U.S. Securities and Exchange Commission approved the first Bitcoin Spot ETF on January 10, the market response has been strong, with $4.5 billion traded on the first day alone. Recent data shows inflows remain strong, with $400 million reported in one day, according to Bloomberg analyst James Seifert.
Reflecting on the past month, McClurg noted that market developments have been largely in line with Valkyrie’s predictions. The unexpected turn of events was that outflows from Grayscale were less severe than expected, as Grayscale experienced a sharp drop in Bitcoin when it converted from a trust to an ETF, briefly dropping below $41,000. caused a decline. Nevertheless, McClurg foresees potential future outflows that could benefit other ETFs.
Valkyrie is navigating a crowded market alongside strong competitors such as BlackRock and Fidelity. BlackRock’s iShares Bitcoin ETF and Fidelity Wise Origin Bitcoin Fund have more than $3 billion in assets under management in less than a month, eclipsing Valkyrie’s $123.7 million.
Despite this disparity, McClurg is optimistic about Valkyrie’s performance, particularly against peer competitors, and believes success is due to the company’s digital asset expertise and traditional I think this is due to market experience.
Competition among ETFs has led to aggressive fee reductions aimed at attracting investors. Valkyrie has set its sponsorship fee at 0.25%, in line with industry leaders BlackRock and Fidelity, and although McClurg expressed concerns about the timing of such a price cut, he believes it is a necessary step. .
He warns that for issuers that are already underperforming, the financial sustainability of running spot ETFs could be at risk. As a result, some companies may eventually find themselves unprofitable and withdraw from the market.