Crypto traders are holding their breath waiting for the United States Securities and Exchanges Commission to approve or reject a first bitcoin ( BTC +0.16% ) spot exchange-traded fund — and one of the issuers, Valkyrie Investments, is anticipating a decision shortly.
“We’re expecting the SEC will deem the ETFs effective at close of business on Wednesday and the trading to begin on Thursday morning,” Valkyrie Investments co-founder and CIO Steven McClurg told The Block in an interview.
If and when trading begins on Thursday, McClurg expects $200 million to $400 million of investors’ funds coming to Valkyrie’s ETF, and all participants might see $4-5 billion of inflows over the first couple of weeks, he said.
Not all the 13 ETF applicants might make it to the finish line in the first wave, though, but McClurg expects the first batch of 10 ETFs to launch at the same time. “I do suspect that one or two might not get off the ground on day one, just because there is a lot of work to be put in. I know that my team worked all through the Christmas holidays and over the last week, too, to be sure we’re ready to go,” he added.
“There is a lot of work behind the scenes to go into something like that — it’s not like a normal ETF. One complication here is that you have two custodians, one for crypto and one for cash, and making sure that these two accounts are connected. It’s almost like double work to get launched in a situation like that,” McClurg explained.
The biggest hope for the bitcoin spot ETF so far has been that it will attract the U.S. institutional investors, but McClurg said it’s likely that retail investors will be the first to pour money in. “Out of the gate, it’s going to be mostly retail, some financial advisors, and I also expect a lot of outflows from GBTC,” he said, referring to Grayscale’s fund that the company is currently trying to convert into an ETF, too.
This is partly because financial advisors normally take some time to watch new financial products trade before they can recommend them to clients, he said, noting: “Most financial advisers require two to three years of a track record from an ETF.”
Unconcerned about Coinbase
The biggest difference between launching a “normal” ETF and a spot bitcoin ETF is that, in the latter case, an issuer has to make the SEC comfortable with the fact it’s holding its assets not with a traditional custodian but a crypto exchange.
While most of the bitcoin ETF issuers list Coinbase as their custodian, the exchange itself has been fighting a lawsuit from the SEC. However, McClurg does not see it as an existential threat to Coinbase’s business but rather a normal part of any financial firm’s reality.
“That is not something I’m really concerned about. Any financial institution on Wall Street, think Goldman Sachs, Morgan Stanley — they all had SEC lawsuits, SEC investigations and it’s typically one part of their business. When it comes to Coinbase, we’re dealing with the custody side of their business, and most of the SEC complaints are on the consumer-exchange side of their business,” he said, adding that Coinbase’s custody business is “perfectly fine.”
Fighting for the lowest fees
Another intrigue of the spot ETF race has been a stark fee competition between the issuers, who seemed to outbid each other with the lowest fees possible Monday morning. According to the latest filings, different issuers offer fees from 0.24% to 1.5%, with the highest offer from Grayscale and lowest from Bitwise. (Valkyrie offers 0.8%.)
When asked how the firm is planning to make profit with the fees so low, McClurg said such products may stay unprofitable for a while and that’s ok.
“Any time you launch an ETF it always loses money in the early stages and starts making money later, so you just have to be prepared for that. ETFs shut down all the time because they don’t gather the assets that they need,” he said, adding that Valkyrie, however, is expecting its ETF to become profitable in the first year of trading.
“We’ve been working on this ETF for three years now, we’re not gonna give up after even a couple of years. The ETF business is a tough one and you have to be committed to doing this long-term,” McClurg said.
“Bitcoin, obviously, is a very exciting place where people are going to be gathered for a long time,” he added.
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