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Billion-dollar crypto fund Valkyrie is reducing exposure to Ethereum ahead of the Merge

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(Kitco News) - One of the most active conversations in the crypto world right now is how to play the market as it approaches the long-awaited Ethereum Merge, which is expected to begin on September 6.

On one hand, there’s the crowd that thinks the Merge will kick off a new era for Ethereum along with a new bull market cycle, while others see the event as a “buy the rumor, sell the news” type of happening that will plunge prices back into bear market territory.

It appears as though the crypto-focused fund Valkyrie Investments, which has roughly $1 billion in assets under management, is taking a more hesitant approach to the Merge and looking to limit its exposure to the ETH market until it sees how the Merge plays out.

This revelation came during an interview with Bloomberg Technology when Steve McClurg, Valkyrie's chief investment officer, said the crypto asset manager has opted to take a flight-to-safety with assets like Bitcoin (BTC) as the Merge approaches.

“Right now Bitcoin is really the flight to safety for a lot of our funds…some of the more established proof-of-stake protocols are also a great place to be. Places like Avalanche and Zilliqa,” McClurg said in the interview. “So we’re really moving out of anything that has too much exposure to ETH right now until we see this merge sometime in [the] middle [of] September and into some of the safer larger crypto protocols.”

As to why the firm is taking a step back from being overexposed to Ethereum-related investments, McClurg pointed to the tradeoffs that come with the transition to a proof-of-stake (PoS) consensus mechanism, which could pose major risks to investors.

“I don’t necessarily think a move to proof-of-stake is a great thing for Ethereum in the short run. In the long run, it might actually work out,” McClurg stated. “But the Ethereum network is actually more secure as proof-of-work.”

McClurg pointed to Bitcoin in defense of this position, touting the security offered by a globally decentralized network of miners.

“What really makes Bitcoin the most secure network is a long period of time through proof-of-work where, essentially, you have computers or validators, that are validating transactions all over the world in a decentralized manner. When you move to proof-of-stake, that really falls in the hands of a few.”

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As for what it will take for the asset manager to resume placing “big bets” on Ethereum, the CIO suggested that the network’s security will need to prove itself before investors will feel safe enough to hold large amounts of value on-chain again. 

“But in terms of [how] Ethereum goes, the security will need to be seen, how that’s going to work out. Because we really think that if you’re holding a million-dollar-plus NFT and you’re relying on the Ethereum network and it’s changing right now, that may not be a great place to be right now.”

At the time of writing, Ether is down 1.15% on the 24-hour chart and trading at a price of $1,688. The Ethereum dominance rate stands at 19.7%.

Update: An earlier version of this story incorrectly stated that Valkyrie has fully exited its Ethereum positions. A representative from the company reached out to Kitco Crypto to clarify that the firm does still have exposure to Ethereum and is more so trying to limit any increase in exposure until after the transition to proof-of-stake successful.

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