Valkyrie CEO: Firm, industry will emerge stronger after crypto winter

Cryptoasset manager Valkyrie is “cooking up a lot” on the product side, according to the firm’s CEO, as it seeks to build out its offerings and relationships with institutions during the bear market.

“The climate now definitely has a negative on us or any of the other issuers in the market that have crypto-adjacent or crypto products, but we’re just trying to use this opportunity to keep our heads down and build,” Valkyrie CEO Leah Wald Blockworks said in a interview.

Wald noted that the firm is interested in launching more actively managed strategies and continues to pursue the “holy grail” spot bitcoin ETF. The company last week launched its venture arm, led by Lluis Pedragosa, which will make early investments in blockchain technology.

Valkyrie launched its bitcoin futures ETF (BTF) last October and launched its Balance Sheet Opportunities ETF (VBB) and its bitcoin mining ETF (WGMI) in December and February respectively.

But benture investments may be more attractive to institutions that are not as interested in exposure to volatile digital assets, the CEO noted. BNY Mellon and WedBush Financial Services were among the institutional players that participated in Valkyrie’s $11 million funding round last month.

“Studies have previously shown that venture capital investments tend to achieve the best returns in a bear market,” Wald said. “In bear markets, you see builders, and we’ve seen that time and time again, not only in traditional markets, but definitely in the last few crypto winters as well.”

Continue reading for more excerpts from Blockworks’ interview with Wald.

Blockwork: How does the firm think about the pursuit of a spot bitcoin ETF?

Forest: We are certainly still working towards our goal of bringing the holy grail – a spot bitcoin ETF – to the market, especially when you consider how much demand bitcoin futures ETFs have seen.

We still believe that until a crypto exchange registers with the SEC, we are not going to see bitcoin ETF approval. So we’re definitely, unfortunately, in a holding pattern there waiting for an exchange.

Exchanges may take 12 to 18 months for approval after registration with the SEC. Unfortunately, that’s probably a realistic timeline.

Blockwork: Fellow spot bitcoin ETF hopeful Grayscale Investments decided to sue the SEC last month. How do you see that playing out for them and other issuers, like Valkyrie, that chose not to go that route?

Forest: We think it’s pretty appalling that Grayscale is trying to go against the SEC with such an aggressive approach when it’s been clearly proven throughout history that working with regulators and cooperating has always been successful in trying to get regulated assets approved, especially in ETFs – the packaging.

So we don’t think this is justifiable, and unfortunately we’re not holding our breath for a positive outcome for Grayscale or the wider market while this kind of frankly crude and aggressive activity is pursued. I think unfortunately it shines a negative light on our industry and on issuers, although I think if the rest of us continue to cooperate and pursue education with the regulators, then we can probably get to the outcome we want in that place bitcoin ETF approval .

That can be seen as a long-term positive, because again, working with the SEC is a marathon, not a sprint.

Blockwork: What are your thoughts on the mining industry as these companies endure the tough market conditions?

Forest: We are very positive about miners and the mining industry. We’re definitely seeing a continued push for renewables – more sources like wind, hydro, solar – and we think it’s really because of the strategic advantage of being environmentally friendly, which has been shown to have higher margins.

It’s a great industry where developers definitely prove themselves during bear markets and we’re nowhere near the break-even point where miners will start shutting down. We’re not even close.

We truly believe that larger companies with more capital are going to buy up more miners and strengthen their positions, and we will continue to see more innovative lending facilities to realize some of these investment opportunities. There are miners with very strong balance sheets who can take advantage of this opportunity themselves without even needing a joint venture or partnership with a larger institution or firm. And those with weaker balance sheets are far more likely to be acquired rather than bankrupt.

Blockwork: ProShares launched the first bitcoin futures ETF and has the lion’s share of assets. As the second to market with such a product, how do you try to build that fund?

Forest: Notoriously, second-movers see that kind of less demand. Demand could definitely be more robust, but even so [Volatility Index] (VIX) futures took years to catch on. We definitely expect demand to eventually support more than one fund, if not three, and hopefully see other structures being approved in the future, such as the bitcoin spot ETF.

But in the meantime … it’s just about educating institutions for long-term relationships – getting on the platforms and just being the asset manager of choice for all institutions looking to allocate in the future after this volatility has moved out.

Blockwork: What have been some of your conversations with institutions regarding Valkyrie’s products?

Forest: Large investors – institutions, sovereign wealth funds, pensions, endowments – they can take years to do due diligence. So I think people in our industry forget that just because something is an interesting buy doesn’t mean that a professional money manager or an institution is allowed to buy yet. It needs to go through their investment committee, it needs a thesis to back it up… and someone to defend it. And it must also sit within their risk parameters.

I think that the longer these funds are in the market, the better opportunity there will be when the markets start to turn, because it will have given the fund life and a trust with managers and issuers in the market, so they can buy when they want to buy.

Blockwork: What does the firm monitor from a macro perspective?

Forest: Like all bitcoiners, we definitely monitor and worry about the inflationary issues not only in the US but globally.

As we have seen throughout history, there is a high correlation between the stock market and the crypto market, so as long as we see downward pressure in traditional financial markets, we unfortunately think it will continue in the crypto markets as well.

At the FOMC meeting this week, we expect a 75 [basis points] hike, so it should go as planned. We expect the market to remain flat and perhaps move a small amount higher.

I guess we’ll see what happens with the GDP numbers coming out this week. They will likely confirm a recession, and that doesn’t help anyone.

Blockwork: What do you see as the silver lining to this bear market?

Forest: Having been through a couple of cycles now, I think what’s most interesting to me that I also think we’ll see is just all the innovation that comes out of the bear markets. There’s always a purge that happens of companies that weren’t a good fit from a fundamental level that weren’t strong and that were fads, not trends.

There will be teams like Valkyrie that have their heads down and want to build, and we’ve seen in conversations with our venture fund that there are great companies out there doing that, especially in this middleware and infrastructure tier of the industry.

So we will see different blockchains come out stronger than ever, and they will have a more differentiated place in everyone’s mind, rather than what I feel for the last year has been an undifferentiated understanding in the retail market of “crypto” that encompasses everything. There will be more understanding of who is strong, who needs to be monitored and who wants to be part of which ecosystem and why.

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