Ryan O’Neill: Valkyrie CIO Warns Bitcoin ETF Issuers to Shrink by December 2024
Valkyrie chief investment executive Steve McClurg forecasts that fierce competition in spot Bitcoin exchange-traded funds (ETFs) will have several casualties. The investment executive indicates that not all Bitcoin ETF issuers will survive the competitive arena by 2025.
McClurg reflected on the spot Bitcoin ETFs as they close to the initial month anniversary to indicate that a few will exit the competitive arena by the end of 2024. Two or three of the executive projects of the ten issuers operating will exit the scene.
Higher Spot ETF Cost to Force Exit
McClurg attributes the exit to higher costs in running the spot Bitcoin ETF. The exit is inevitable given the race to lower the fees, a move that ultimately hurts the profitability of the ETF issuers presently struggling.
McClurg indicated that the issuer will cut it loose if it fails to gather $100M in assets under management.
Valkyrie’s executive is reflecting on the spot Bitcoin ETFs a month since the Gary Gensler-led Securities and Exchange Commission (SEC). He considers the fund’s influx strong, with $4.5 billion trading recorded on the initial day – a milestone considered a massive standard.
McClurg acknowledges that spot Bitcoin ETFs garnered $400 million in inflows, as senior Bloomberg analyst James Seyffart reported.
McClurg indicated that the previous month portrayed the market’s events as projected earlier. Valkyrie had anticipated a tight race ahead of the spot Bitcoin ETFs launch.
McClurg admitted that Grayscale’s higher outflows were an exception. The executive indicated that the sell-off arose from investors cashing in to take profits following Grayscale’s trust-to-ETF conversion.
The Valkyrie’s executive attributed the sell-off to imposing pressure on Bitcoin, whose price plunged below $41,000. While the selling pressure ultimately eased, McClurg anticipates that more outflows would likely appear distributed among the new spot Bitcoin ETFs.
Valkyrie Targets Matching Second-tier Issuers in Volume
McClurg acknowledged the fierce competition as Valkyrie battled against nine other rivals. The space features various Wall Street giants led by BlackRock and Fidelity.
McClurg observes that Valkyrie faces fierce competition with the Wall Street duo – Fidelity and BlackRock, already surpassing the $3 billion in assets under management (AUM). Bitwise joined Cathie Wood’s Ark Invest 21Shares ETF in realizing inflows exceeding $700 million.
McClurg downplayed Valkyrie’s critics and expressed satisfaction with its performance. Owing to its long involvement in digital assets and conventional markets, it outperformed ETFs associated with larger issuers.
McClurg disclosed that Valkyrie realized $123.7 million in AUM by February 8. This is less than the figures realized by its massive peers. The investment executive indicates that beating the dominant players is not the primary objective.
McClurg indicated that one cannot beat Fidelity and Larry Fink’s BlackRock. The duo leverages captive markets. Nonetheless, the executive indicated that joining the next tier is a realistic objective that would signal an impressive performance.
ETF Issuers’ Fee War to Force Several Exit
McClurg lamented the intense competition within the ETF segment. This fierce rivalry is evident in the recent rounds of fee cuts witnessed before and after the launch of ETFs.
McClurg explained that the cuts target luring investors. However, their introduction yields a trade-off as they erode the returns of ETFs.
Valkyrie initially set the sponsor fee to 25 basis point, matching BlackRock and Fidelity charges. The January 11 decision targeted avoiding the unenviable spotlight of Valkyrie becoming the outlier. Nonetheless, the fee cuts are an unfortunate move undertaken at the onset of the ETFs round.
McClurg warns that the high security and custody costs incurred to run a spot ETF would likely become difficult to sustain for the issuers exhibiting lagging performance. Such occurrences make profitability doubtful, prompting McClurg to predict a likely shrink in the number of present issuers by 2025.
McClurg considers the exit of several spot Bitcoin ETF issuers as inevitable. He indicated that those bound to issue cancellations need to make money.
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