In the highly competitive world of Bitcoin exchange-traded funds (ETFs), Chief Investment Officer Steven McClurg of Valkyrie Funds has warned that not all issuers will survive the intense battle, predicting a consolidation by the end of the year.

McClurg foresees that out of the current ten operating ETF issuers, only about seven or eight will remain viable contenders. The driving force behind this contraction, as explained to Decrypt, is the potentially burdensome costs associated with running a Bitcoin spot ETF. Particularly, a fee-cutting war could emerge, impacting profitability for struggling issuers.

According to McClurg, "If you don't gather $100 million [of assets under management] by now, you might as well cut it loose." Since receiving approval from the Securities and Exchange Commission to launch Bitcoin spot ETFs on January 10, the influx of funds into the market has been substantial. The initial day of trading alone witnessed a staggering $4.5 billion in trading volume. Furthermore, Bloomberg analyst James Seyffart reported an additional $400 million inflow in the last 24 hours.

Reflecting on the past month, McClurg acknowledged that the market events aligned with Valkyrie's expectations before the ETF launch. However, McClurg noted one exception, noting that they anticipated greater outflows from Grayscale, whose conversion from a trust to an ETF triggered a sell-off in Bitcoin. This contributed to a temporary drop in value below $41,000 before rebounding.

Despite the challenges, Valkyrie is pleased with its performance in the face of fierce competition from heavyweights like BlackRock and Fidelity. Both of these companies' Bitcoin ETFs accumulated over $3 billion in assets under management within the first month. Meanwhile, Ark Invest's 21Shares and Bitwise's ETFs saw inflows above $700 million as well.

McClurg attributes Valkyrie's relative success to the firm's extensive experience in digital assets and traditional markets. As of February 8, Valkyrie managed approximately $123.7 million in assets under management, significantly lower than its larger peers. Nevertheless, McClurg emphasized that surpassing industry giants like BlackRock and Fidelity is not the primary goal. Rather, the focus is on competing effectively within the next tier of issuers.

The battle for supremacy among ETF providers has led to intense competition, evident in the rounds of fee cuts witnessed before and after the ETF launch. These cuts aim to attract more investors but come at the price of reduced returns for the ETFs.

To avoid being an outlier, Valkyrie set its sponsor fee at 0.25%, aligning with those charged by BlackRock and Fidelity. While seeking to avoid negative attention, McClurg expressed disappointment at the necessity for fee reductions at such an early stage.

Running a spot ETF incurs significant costs, including expenses for security and custody, making sustaining profitability challenging for lagging issuers. It is these challenges that underscore McClurg's prediction of a reduction in the number of Bitcoin spot ETF issuers next year.

"I do think that we're going to see some of the issuers going through the pain of canceling their Bitcoin spot ETFs because number one, they're not making money. Number two, they'll never make money," commented McClurg. He humorously added, "I think if you want to identify who's desperate, look for Bitcoin spot Super Bowl ads."

As the Bitcoin ETF battle ensues, it remains to be seen which issuers will ultimately secure a prominent position in this rapidly evolving market.