Why Vanguard Said "No" to Bitcoin

After months of speculation and a frenzy of attention that crossed over from crypto Twitter to mainstream financial channels, those long-awaited spot BTC ETFs finally gained approval from the SEC earlier this month, and from there, were almost immediately up and running.

There was the added last minute drama of the SEC having its X account compromised, resulting in a fake approval post going out a day early, an occurrence which will go down as yet another moment of disruptive madness in Bitcoin history, but in the end, the consensus was that we were in uncharted but inevitable territory; stepping across the chasm between a novel, volatile, and frequently misunderstood monetary technology, and the (ostensibly) risk-averse world of orthodox, mainstream finance.

After all, with the investment titan BlackRock on board, what more weighty seal of trad-fi approval could Bitcoin garner? As it turned out, though, there was still some institutional doubt remaining, and not every major player is in agreement about BTC’s prospects, either as an investment choice or for any other purpose, as revealed when customers with Vanguard discovered that the firm had opted not to provide access to those hugely hyped-up new spot ETFs.

In fact, not only did Vanguard choose not to offer the new BTC products, but it then made the decision to stop offering BTC futures ETFs, which had previously been available on its platform. The upshot being, then, that while other firms were setting about promoting BTC as a necessary component in an up-to-date portfolio, Vanguard was going out of its way to make sure its customers were shepherded well clear of anything blockchain -related.

Vanguard's Consistent Approach

When it comes to the reasons for Vanguard's position on Bitcoin, representatives of the firm have been quoted as saying that Bitcoin products, “do not align with our offer focused on asset classes, such as equities, bonds, and cash, which Vanguard views as the building blocks of a well-balanced, long-term investment portfolio.”

Vanguard doesn’t fit with most young wealthy people’s investment philosophy.

Change = an opportunity or a threat. https://t.co/9oaPZFmdhr

— CTO Larsson (@ctoLarsson) January 11, 2024

And furthermore, that the purchase of Bitcoin products, “doesn't fit with Vanguard's investment philosophy.”

But, what does this reference to the firm’s own philosophy actually mean, and is it really the only factor in Vanguard steering clear of Bitcoin and crypto?

Steven Lubka, the Managing Director at the Bitcoin services provider Swan Bitcoin, believes that a reason Vanguard is not offering the new BTC ETFs is because, “they [Vanguard] are against ‘non-productive’ investments, as in, investments without cash flows.”

And, so Vanguard opts out of BTC products, which it appears to regard simply as a speculative bet on higher prices in future, “For the same reason they opposed gold.”

That last point, about gold, references Vanguard’s decision not to offer gold ETFs when other firms were first leaping in. And, as BTC is sometimes directly advocated for as digital gold, just this month, BlackRock’s Larry Fink stated that bitcoin is “no different than what gold represented over thousands of years. It is an asset class that protects you.” Then there is consistency in Vanguard’s approach, regardless of whether the assets under consideration happen to be physical metals or entries on a digital ledger.

"It is an asset class that protects you." - Larry Fink, CEO of BlackRock on #Bitcoinpic.twitter.com/jO1YAj99ju

— Michael Saylor⚡️ (@saylor) January 12, 2024

We can also find evidence of this consistency if we look back to 2020, when Vanguard took a reserved, wait-and-see approach towards ANT (active non-transparent) ETFs, while other firms were, by contrast, keen to include the new products. Notably, State Street took a similar approach to Vanguard, sitting back when others were enthusiastic, and the same is true now when it comes to crypto, as State Street has chosen, for the moment, not to offer spot BTC ETFs.

All in all then, it would be an unusual shift in approach if Vanguard had chosen to rush into a spot BTC ETF, and it fits comfortably with the Vanguard brand for the firm to visibly step away from crypto when others are riding in on a wave of hype.

The Impact on Bitcoin

When it comes to whether Vanguard might change its approach to crypto, considering the company’s long-term stance, not just towards BTC but also on similar assets, a significant shift appears improbable at this time.

If such a change were ever to occur, it might require deeper and more long-term mainstream adoption of BTC, although even then, the digital currency might still remain outside the firm’s investment boundaries. However, considering the possibility of increased bitcoin adoption raises another question, which is whether rejection from Vanguard, despite a regulatory greenlight from the SEC, might exercise a drag on Bitcoin’s movement towards greater acceptance.

That sounds initially plausible, but at the same time, the opposite may be true, as Vanguard’s decision appears to have created even more headlines and debate focused on Bitcoin, thereby pushing the asset further into mainstream awareness. Or as Lubka put it: “It doesn't matter for BTC, if anything it's free publicity. As long as you can still buy it at other brokers, people have all the on-ramps they need.”