Spot Bitcoin exchange-traded funds (ETF) are approaching their one-month anniversary of operation, and according to Valkyrie Funds’ Chief Investment Officer Steven McClurg, the landscape of ETFs is expected to undergo a shift by the end of the year. McClurg anticipates that only “about seven or eight” out of the current ten issuers will remain operational due to the potential challenges and costs associated with sustaining a spot Bitcoin ETF.
McClurg’s insights are based on the observation that the costs of running a spot ETF for Bitcoin could become burdensome, especially in light of the ongoing fee-cutting competition that could impact profitability for struggling issuers. He further emphasized the importance of reaching a significant threshold of $100 million in assets under management to sustain viability in the ETF space.
Since receiving approval from the Securities and Exchange Commission on Jan. 10, the initial batch of Bitcoin spot ETFs has experienced strong inflows, with an impressive $4.5 billion in trading on the first day alone. This trend has continued, with an additional $400 million in inflows reported in recent days. However, McClurg noted that the market events aligned with most of Valkyrie’s expectations following the launch, except for higher-than-expected outflows from Grayscale. This sell-off in Bitcoin led to a temporary decline in value, but McClurg anticipates that the outflows may shift to other ETFs over time.
Despite facing significant competition from established players like BlackRock and Fidelity, Valkyrie has managed to attract approximately $123.7 million in assets under management as of Feb. 8. McClurg emphasized that while surpassing larger ETFs isn’t the primary goal, Valkyrie is positioned favorably compared to other issuers in the space.
The competitive nature of the ETF marketplace has led to rounds of fee cuts aimed at increasing investor participation. However, McClurg cautioned that these reductions, while beneficial for attracting investors, may diminish an ETF’s overall returns and could become unsustainable for issuers facing profitability challenges.
McClurg concluded by indicating that the industry is likely to witness a contraction in the number of issuers operating Bitcoin spot ETFs by next year, as those facing financial struggles may be forced to discontinue their offerings. He emphasized that identifying desperate issuers could be as simple as observing which ones resort to advertising during the Super Bowl. These insights shed light on the evolving dynamics within the ETF space and provide valuable considerations for industry professionals in navigating the market.
