The Bitcoin exchange-traded funds (ETFs) market, which has recently marked its first month of spot trading, is likely to see consolidation by the end of 2024, according to Steven McClurg, Chief Investment Officer at Valkyrie Funds. In a recent interview with Decrypt, McClurg predicted a decrease in the number of Bitcoin ETF issuers from ten to around seven or eight.
McClurg attributed this anticipated consolidation to the financial challenges involved in running a spot Bitcoin ETF, amplified by the trend of competitive fee reduction. He highlighted the importance of the $100 million asset under management threshold as a critical factor in determining an ETF’s viability.
Since the U.S. Securities and Exchange Commission’s approval of the first Bitcoin spot ETFs on January 10, the market has shown robust response. On its first day, the market saw a significant trading volume of $4.5 billion. Recent data indicates a continued strong inflow, with a single-day report of $400 million, according to Bloomberg analyst James Seyffart.
Reflecting on the month’s performance, McClurg observed that the market developments have largely been in line with Valkyrie’s expectations. One unexpected occurrence was the less severe outflow from Grayscale after its conversion from a trust to an ETF. This transition led to a temporary dip in Bitcoin prices below $41,000. However, McClurg anticipates the possibility of future outflows that could benefit other ETFs in the sector.
In the competitive landscape of Bitcoin ETFs, major players like BlackRock and Fidelity have quickly amassed significant assets under management, surpassing $3 billion within a month. Despite this, Valkyrie, with $123.7 million in assets, remains optimistic about its position in the market. McClurg credits Valkyrie’s success to its blend of digital asset expertise and traditional market experience.
The intense competition has led ETFs to aggressively reduce fees to attract investors. Valkyrie has aligned its sponsor fee with industry giants BlackRock and Fidelity at 0.25%. While McClurg sees this as a necessary move, he expresses concerns about the sustainability of running a spot ETF, especially for issuers struggling with profitability. He warns that some may eventually have to exit the market due to unprofitability.
As the Bitcoin ETF sector continues to evolve, it faces the dual challenges of market volatility and intense competition. The potential consolidation predicted by McClurg could reshape the landscape, highlighting the need for strategic approaches to maintain viability in this dynamic market.
