Two New Valkyrie Funds Planned for Bitcoin Exposure

Fund manager Valkyrie continues its push to launch other crypto-related products. The ETF issuer has filed to launch two new Valkyrie funds: the Valkyrie Bitcoin Miners ETF and the Valkyrie US Innovative Balance Sheet ETF, according to SEC disclosures filed on Wednesday night. The proposals seem to be updated filings from initial documents first published in July.

Both funds are actively managed, but neither would invest directly in bitcoin. The offerings would be subadvised by Vident Investment Advisory. Both have a management fee of 75 basis points, the documents note, though neither has a ticker listed.

The filings come about a week after Valkyrie withdrew its application for a leveraged bitcoin futures ETF at the SEC’s request.

A proposed Bitcoin Miners ETF would invest at least 80% of its net assets in securities of companies engaged in bitcoin mining operations, or those that provide specialized chips, hardware and software or other services to companies engaged in bitcoin mining.

The planned Innovative Balance Sheet ETF would primarily invest in the securities of US companies that directly or indirectly invest in, transact in, or otherwise have exposure to bitcoin, such as bitcoin custodians, exchanges or traders.

“This may include companies that invest in or have any portion of their assets accounted for by direct bitcoin holdings, including companies that hold or transact in relatively small amounts of bitcoin,” the filing states.

“The fund may also invest up to 20% of its net assets in companies that do not meet the innovative balance sheet criteria above but otherwise operate in the bitcoin ecosystem.”

Both products would join a segment of crypto ETFs that do not physically hold bitcoin as a handful of issuers wait for regulators to allow spot bitcoin ETFs to begin trading. 

“Much like gold miners’ stocks were the best proxy some investors had for owning gold in the pre-GLD era, these pick-and-shovel crypto-tangential equity ETFs are a way for those who can’t or prefer not to invest directly in crypto to try to capitalize,” said Ben Johnson, Morningstar’s director for global ETF research. 

The largest crypto-related ETF in the US is Amplify Investments’ Transformational Data Sharing ETF (BLOK), which has nearly $1.3 billion assets under management. Its top two holdings, according to ETF.com, are Toronto-based digital currency miner Hut 8 Mining and MicroStrategy, a software company that bought nearly 9,000 bitcoins in the third quarter. 

Building out a crypto fund family

Valkyrie last month launched its Bitcoin Strategy ETF (BTF), which invests primarily in bitcoin futures contracts. It launched three days after a similar product by ProShares, which was the first product of its kind in the US and now has more than $1 billion assets under management. 

“Our bitcoin futures fund … was always meant to be the first in a family of crypto and crypto-adjacent ETFs,” Valkyrie Funds CEO Leah Wald told Blockworks in an email. “Financial advisors that we speak to have increasingly been looking for ways to satisfy client demand, and these filings are a direct result of those conversations.”

Wald added that the firm has a number of other potential fund ideas in the works and will continue to look for innovative ways to bring crypto exposure to the markets. She declined to comment on specific products the firm might be considering, or about the withdrawal of the leveraged futures ETF.

In terms of a spot bitcoin ETF, industry professionals remain uncertain about when the SEC could allow such a product to trade.

Bloomberg Intelligence ETF Analyst Eric Balchunas said during a recent Blockworks podcast that he would estimate December 2022 as his “over-under” for a spot bitcoin approval. Wald, who joined Balchunas on the podcast, noted that she believed it would be sooner.  

The SEC moved back the deadline to make a decision on Valkyrie’s proposed bitcoin ETF by 60 days — from November 8 to January 7, 2022 — according to a disclosure published on Monday.

“We believe this a positive step because it means the agency is taking the time to deliberate and wholly consider the merits of such a product coming to the market,” Wald said.