Spot Bitcoin ETFs May Shrink by Year’s End, Says Valkyrie Funds CIO
According to Steven McClurg, Chief Investment Officer of Valkyrie Funds, there is a possibility that the number of spot Bitcoin exchange-traded funds (ETFs) may decrease by the end of the year. McClurg predicts that out of the ten current issuers, only around seven or eight will remain. The main reason behind this potential shrinkage is the high costs associated with running a spot ETF for Bitcoin. In addition, the ongoing fee-cut war among issuers could impact profitability for those struggling to attract assets under management (AUM).
Influx of Funds and Market Expectations
Since the Securities and Exchange Commission approved the first batch of Bitcoin spot ETFs on January 10, there has been a strong influx of funds. On the first day alone, trading reached $4.5 billion. According to Bloomberg analyst James Seyffart, there have been additional inflows of $400 million in recent days. McClurg stated that events in the market have largely aligned with Valkyrie’s expectations since the launch, except for higher-than-expected outflows from Grayscale.
Competition and Valkyrie’s Performance
Valkyrie faces steep competition from nine other rivals in the space, including BlackRock and Fidelity. Despite having a smaller figure of about $123.7 million in AUM as of February 8, McClurg expressed satisfaction with Valkyrie’s performance compared to larger issuers. He acknowledged that beating BlackRock and Fidelity may not be feasible due to their captive markets but believes Valkyrie is doing well within its tier.
The Fee-Cut War
The competition among ETF issuers is intense, leading to rounds of fee cuts aimed at attracting more investors. However, these cuts come at the expense of eating into an ETF’s returns. Valkyrie set its sponsor fee to 0.25% to avoid standing out as an outlier but deemed the cuts unfortunate at such an early stage. The high costs of running a spot ETF, including security and custody expenses, make it challenging for struggling issuers to sustain these cuts and remain profitable.
Predictions for the Future
McClurg predicts that some issuers may cancel their Bitcoin spot ETFs due to lack of profitability and the unlikelihood of ever becoming profitable. He believes that identifying desperate issuers can be done by looking for Bitcoin spot Super Bowl ads. Overall, he anticipates a reduction in the number of issuers by next year.
Hot Take: The Challenges and Uncertainties of Spot Bitcoin ETFs
The spot Bitcoin ETF market is facing challenges in terms of costs, profitability, and fierce competition among issuers. While there has been a strong influx of funds since the launch, the high costs associated with running a spot ETF and the ongoing fee-cut war pose risks to profitability. Valkyrie Funds’ CIO, Steven McClurg, predicts that only a few issuers will remain by the end of the year. These uncertainties highlight the difficulties faced by spot Bitcoin ETFs in establishing themselves as sustainable investment vehicles in the crypto market.
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