Everyone in the crypto world has Wednesday circled on their calendar: It’s the day the SEC is expected to finally approve spot Bitcoin ETFs, a vehicle that will let U.S. investors for the first time trade the popular cryptocurrency in the form of shares on a major exchange.
Steven McClurg is the cofounder and chief investment officer of Valkyrie, a crypto native asset manager that is one of a dozen-odd prospective issuers vying to sell Bitcoin ETF shares after the SEC gives the green light. Unlike other players from traditional finance vying for an early market advantage, including BlackRock and Fidelity, Valkyrie hopes its digital asset bona fides will give it an edge for investors. The firm already has two crypto ETFs: one that invests in public Bitcoin mining companies and another that invests in Bitcoin and Ether futures contracts. And in a nod to the prodigious world of crypto memes, Valkyrie chose BRRR as the ticker name for its spot Bitcoin ETF—a reference to the sound of the Federal Reserve “money printer.”
On Monday, McClurg stopped by the Fortune office to talk about his opinions on the SEC, the advantages of cash versus in-kind redemption models for ETFs, and the battle over fees. A veteran of TradFi himself, McClurg offers a unique perspective as someone straddling the line between Wall Street and crypto “degens.”
This interview has been edited for clarity and length.
We’ve reached a fever pitch with Bitcoin ETF approval. How optimistic are you feeling?
My first couple of years in college, I was a theater minor. The best way I can think about it is Waiting for Godot. That’s how I felt for the first three years of this, but now it’s come to fruition. It’s almost surreal.
In the last six weeks, we’ve put massive amounts of work into it. There are a lot more hurdles in this ETF than most other ones that we’ve had to get through. We got the word that something was going to happen right before Christmas break. The communication was very simple: The SEC had a lot of papers to review. If you want to make sure that you’re in that first batch to be reviewed, make sure to have everything in by the end of the month.
So the whole team has been working through that break and last weekend. The filing today is a massive, massive milestone. And we got it done. So we’re just very excited and proud of the work.
At what point did you become optimistic that the SEC was going to approve the ETF?
Back in October, we got the very first comments on our ETF filing after three years. Things were moving. We didn’t have an idea of what the timing would be, but we knew that they were getting ready.
What’s your understanding of the next steps? There has been reporting about a potential commission vote, even though there isn’t one scheduled.
We’re just in a slight holding pattern. I’m in the camp where I believe that sometime after the market closes on Wednesday, the ETFs will go effective, meaning they trade on Thursday. That doesn’t mean that that’s going to happen, but that’s what I believe is going to happen.
I’m not aware of any type of commission vote, and I’ve never heard of an ETF that needed a commission vote. There have been a lot of people who have spread that rumor, but we have no understanding of any type of commission vote for this.
I don’t know how each commissioner would vote, but I have a pretty good idea of how some of them would if that were to happen. There are at least two commissioners that I believe want this to happen and have been for the whole way: Mark Uyeda and Hester Peirce. And I also believe that Gary Gensler has been wanting this to happen as well. Look at the facts since he took over as chair. We got a Bitcoin futures ETF very quickly. Then we got an Ether Futures ETF and now we’re getting a Bitcoin spot ETF. There are a lot of people on Twitter who like to hate on Gary Gensler, but from my chair, he’s been very good for Bitcoin.
Valkyrie was in a unique position of not meeting with the SEC during the period in December when many issuers were coming in to argue for in-kind creates and redemptions. What’s your view?
A lot of people on my team, including myself, have managed ETFs in the past. One of the pieces of misinformation out there is that most ETFs are always in-kind creates and redeems. That’s not the case. It’s probably the case for equities. But most of my experience is on the bond side and more esoteric types of ETFs. And even though they allow for both, you typically always do cash, so I’m used to cash creates and cash redemption.
The other thing is when it comes to cash creates, it also allows for more market participants. A lot of the banks just don’t know what the rules allow them to do. So they think, if it’s cash creates, we’ll do it, and if it’s in-kind, we’re just going to have to wait. Setting the standard of cash creates helps beef up the market in the early days. It doesn’t mean that it won’t change later. But for a launch like this, you need as many market participants as possible.
Besides authorized participants, the other main partner is the crypto custodian. In your case, that is Coinbase, which is in a lawsuit with the SEC. Is that a concern for you?
We don’t have any concerns there, and I’ll tell you why. Almost every firm on Wall Street has had issues or a lawsuit or an investigation by the SEC, and often. Every time that the SEC investigates UBS, people aren’t pulling their money.
The other thing that’s important here is that there are several sides to the Coinbase business. It looks like what the SEC is going after is the tokens on Coinbase’s consumer-facing exchange business. And we’re not facing that business at all. We’re facing their institutional custody business so when you bifurcate that, we don’t have any issues with their institutional business.
There’s a possible future where Coinbase only offers custodian services in the U.S. and then its exchange business offshores.
That’s what I would do if I was ruling Coinbase.
We saw a dynamic in the filings today where issuers are trying to undercut one another with fees and waivers. Your fee, which is set at 0.80%, is higher than many of your competitors. What’s your approach?
There was the first round of filings. A few people disclosed fees, and a few people didn’t. Our understanding after speaking with the SEC was that they wanted a 100% finished application, so that’s what we delivered. We filled in every blank.
During this last round, where everybody filed this morning, a lot of the issuers took the opportunity to lower their fees. We decided not to do that at this point. But we’re constantly evaluating and looking to be competitive. But we also want to note that we’re not going to be the cheap, low-cost provider either. We’re a little bit more sophisticated when it comes to Bitcoin storage, security, and trading.
You’ve got investors waiting at the gates, and they’re going to go with the name that they recognize. Frankly, the most well-known name is BlackRock. Most people are going to choose BlackRock. But then there are a lot of people who recognize the name BlackRock and say they don’t like that name. So what are the other names that they like? At the end of the day, people are going to choose the advisor that they’re most comfortable with.
If they’re looking for something that’s more brand-name and well-known, that’s probably not us. If they’re looking for experts in this space, there are no gimmicks here. We’re not putting out TV ads, we’re just experts in Bitcoin. That’s who’s going to choose us.
Who do you think your main bucket of investors will be? Is it retail or institutional?
We will probably be bifurcated between institutional and retail. [Registered investment advisors] are probably going to go for BlackRock or Fidelity, just because you don’t get fired for choosing BlackRock when you’re handling other people’s money. But I think the retail audience certainly recognizes us. I know when Ether futures launched, we had about the same volume as everybody else put together. We’re going to appeal to people who are looking for experts and are looking for good active managers who are not going to mess it up.
So much about Bitcoin ETFs seems to be paradoxical to the founding principles of Bitcoin, which decries intermediaries and centralization. How do you think the ETFs fit within the broader ethos of Bitcoin?
I actually believe that ethos. I self-custody my own Bitcoin, and I also have Bitcoin through GBTC in my retirement account. I’ve got Bitcoin in a Valkyrie trust in my retirement account. I own the Valkyrie Bitcoin futures ETF. I own the Valkyrie Bitcoin miners ETF in my own accounts. I like the idea that you have options.
That’s part of the Bitcoin ethos, which that way over here, we’ve got the super technical people that can go out and buy Bitcoin. They can hold it on their own keys; they can memorize their seed phrases, good for them. Maybe in my thirties I could memorize a 24-word seed phrase, but I can’t today. I certainly know how to store it, and I certainly know how to manage it, and not everybody knows how to do that.
