Exchange-traded funds (ETFs) are approaching their first month of operation, and the landscape will likely consolidate 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 decline from 10 to “about seven or eight.” He attributes these expectations to the financial burdens associated with managing a spot Bitcoin ETF, which are exacerbated by the competitive trend of fee cuts that threatens the profitability of distressed issuers. McClurg emphasized significant assets under the $100 million management threshold as a determinant of the ETF's viability.
Since the US Securities and Exchange Commission approved the first bitcoin ETFs on January 10, the market response has been strong, 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 Seyphart.
Reflecting on the past month, McClurg noted that market developments were largely in line with Valkyrie's expectations. An unexpected event was less severe than expected outflows from Grayscale, which, when converted from a trust to an ETF, saw a significant sell-off of Bitcoin, leading to a temporary decline below $41,000. Despite this, McClurg expects the potential for future outflows that could benefit other ETFs.
Valkyrie, along with heavyweight competitors like BlackRock and Fidelity, is navigating a crowded market. BlackRock's iShares Bitcoin ETF and Fidelity Wise Origin Bitcoin Fund surpassed $3 billion in assets under management within a month — eclipsing Valkyrie's $123.7 million.
Despite the disparity, McClurg remains optimistic about Valkyrie's performance, especially against similarly tier competitors, and attributes the success to the company's expertise in digital assets and traditional market expertise.
Competition among ETFs has led to significant fee cuts aimed at attracting investors. Valkyrie has pegged its sponsorship fees with industry leaders BlackRock and Fidelity at 0.25%, a move McClurg considers necessary, though he has reservations about the timing of such cuts.
He warns that the financial sustainability of spot ETF management could be at risk for issuers that are already underperforming. As a result, some may eventually exit the market due to unprofitability.
