Tim Buckley hazards Gen X, Y, Z blowback and catches Vanguard investors off-guard with last-second, anti-Fidelity policy to actively 'steer assets' away from Bitcoin
The Vanguard CEO stripped all third-party Bitcoin funds from its market, even though many young investors see them as table stakes portfolio spice.
8 min read- Vanguard blocks Bitcoin ETFs, citing misalignment with its investment philosophy.
- Experts predict investor backlash, especially from younger generations.
- Decision aligns with Jack Bogle's vision, prioritizing long-term, balanced portfolios.
Brooke's Note: You might think being CEO of Vanguard would be the world's sweetest job – and maybe it is – because it comes with love, respect and power on Day One. But it's also like taking over an 11-0 football team. Perfection is table stakes. So, what do you do with respect to Bitcoin? You thought, maybe, the SEC could serve as a third-party arbiter. No dice. The agency approves spot Bitcoin ETFs out of one side of its mouth and trashes the ground the funds walk on with the other. That puts you back not only at Square One, but also more like Square Zero. Your finesse approach of banning Bitcoin, but selling it out the backdoor through third parties might look thin in the face of abject Gary Gensler warnings. So – almost on the spur of the moment – you make a very big call. No backdoor Bitcoin. It's a risk. The next generation of investors thought that the rear entrance was your best attribute. The good news is that Jack Bogle's legacy is there to lean on, offering succor after harshness descended on your indexing empire.
The headlong rush to sell spot Bitcoin ETFs is on, but Vanguard Group has a message for investors: “Wake me when the revolution is over.”
The Malvern, Pa., company went pure-Jack Bogle at the very last moment and blocked its investors from buying third-party spot Bitcoin ETFs through its discount broker, despite the federal green light last week.
A Vanguard spokesperson said that spot Bitcoin will not be available for purchase on Vanguard's platform, and Vanguard won't offer its own ETF because of its investment philosophy.
“Our perspective is that these 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,” the spokesperson said.
Expect immediate Vanguard investor blow-back from implying one stance then executing on another, says Ric Edelman, founder of the Digital Assets Council of Financial Professionals, which provides training and advice on digital assets.
“Some of their customers have been waiting for these new ETFs, and Vanguard offered no indication that it was not going to put the ETFs on the [discount] brokerage platform.
"This will unquestionably anger many, and cause a number of them to move their assets away from Vanguard," he writes.
Crypto snub
Cryptocurrency enthusiasts howled after Vanguard punted on both the new, spot Bitcoin exchange-traded funds, but also on all crypto products, triggering an effort to get #BoycottVanguard trending on “X,” formerly Twitter.
The larger Vanguard gamble, however, may be long-term because Gen Y, Gen Z and even some Gen X investors are almost sure to see the abject crypto snub as a final straw.
“By not launching its own ETF, it both avoids creating a conflict of interest and does not have to engage in promoting or endorsing the funds," says Edelman.
"Schwab is simply doing its job – giving investors and advisors access and choice – which is something Vanguard has conspicuously failed to do.
"Their respective decisions will cost Vanguard clients, AUM and credibility, while Schwab benefits in all three ways," he says. See: Why the SEC's green light for Bitcoin ETFs failed to convince Charles Schwab & Co. to make crypto trading available to its 32.5 million retail accounts
Why the SEC's green light for Bitcoin ETFs failed to convince Charles Schwab & Co. to make crypto trading available to its 32.5 million retail accounts
The machine
Still, Vanguard should be commended for living up to founder Jack Bogle's vision under no-win circumstances, says Jeffrey DeMaso, founder and editor of the Independent Vanguard Advisor newsletter.
"They are looking out for small investors. The alternative view is that Vanguard is a little bit of a ‘nanny state’ and restricting investor choice. Take your pick."
Vanguard has singular economics that align with its singular principles, wrote Eric Balchunas, a senior ETF analyst at Bloomberg Intelligence, on “X” Tuesday (Jan. 16)
“Vanguard ETFs have taken in $5 billion in the past 5 days. For context, $5 billion is our [optimistic] prediction of flows for nine newborn Bitcoin ETFs in the first four- to six-months.
"Vanguard is a machine and… the BoycottVanguard movement is highly unlikely to even dent the in-flows let alone cause bleeding,” Balchunas wrote.
Losing the Gens
Zoomers, Millennials and the like all suspect that leaders like Schwab, Fidelity and Vanguard are out of touch with them and the future of investing.
Fidelity counters that narrative by going all-in on digital assets. Schwab tries to finesse a middle ground. See: Belated Fidelity and Schwab co-op crypto venture suddenly looks timely, even predatory -- with crypto whiz kids 'belly up' and Bitcoin rising
Story Timeline
Vanguard is betting that the crypto collapse in March, which sank banks like Silvergate, Signature, First Republic and Citizens Bank, will foster long-term trust in the firm across generations.
Analysts say Vanguard may have taken cues from Securities and Exchange Commission (SEC) Chair Gary Gensler more than his rioter approval. See: Gary Gensler post-exchange listing approval for Bitcoin ETF includes a stark '1940 Act' warning to RIAs not to read too much tolerance into it.
It's a terrible bet, says Mike Alfred, founder & managing partner of Alpine Fox LP.
The Bitcoin finfluencer says on "X" that Vanguard's Bitcoin stiff arm goes against what Bogle would have wanted. He says Bogle was “innovative and willing to shake up the system.”
Intrinsic value
Belated Fidelity and Schwab co-op crypto venture suddenly looks timely, even predatory -- with crypto whiz kids 'belly up' and Bitcoin rising
Vanguard, today, is part of the evil empire of TradFi, a term referring to traditional finance.
It's "unrecognizable from the ethos Jack Bogle had when he was in his 20s and 30s [in the early 1960s]. If you don’t innovate, you die, and Vanguard is on its way to the dustbin of history,” he says.
Vanguard CEO Tim Buckley did not mince words about Bitcoin to CNBC in an October interview. He even used the Wall Street pejorative, “steering,” to explain his thinking on his firm's decision not to create an in-house ETF for Bitcoin buyers.
"What has intrinsic value, has cash flows to it, and those are the asset classes we steer people towards. And, so we don’t go towards Bitcoin or gold or those kinds of stable assets,“ he said.
Yet, those circumstances are no longer parallel, says DeMaso.
"If Bitcoin is 'digital gold' ... well, Vanguard has survived without a Vanguard-branded gold ETF. That said, Vanguard hasn't banned gold ETFs from its platform."
Closing loopholes
At the time of Buckley's remarks, Vanguard clients could buy Bitcoin investments, including Grayscale Bitcoin Trust.
After the SEC approved spot Bitcoin ETFs last week, Vanguard hardened its stance and nixed third-party funds that expose investors directly to the digital asset.
DeMaso says he had the surreal experience of watching the change happen in real time – posting on his Vanguard newsletter that loopholes existed, then watching them close moments later.
Seven months ago, DeMaso purchased Bitcoin on Vanguard's brokerage through the Grayscale Bitcoin Trust.
“On Friday evening, I received an email notifying me that Vanguard was closing the door on Bitcoin completely,” DeMaso writes in his column.
“Vanguard didn't have an issue with Bitcoin-futures ETFs until the spot Bitcoin ETFs were launched. I'll take some credit for pointing out the bitcoin-futures ETF loophole.
"But putting that aside, my guess is that the publicity around the spot Bitcoin ETFs made Vanguard re-assess," he wrote in an email.
The Vanguard email he received on Friday said: “Effective immediately, Vanguard will no longer accept the purchase of crypto-related investment products, including those that may have previously been available for purchase on our platform.”
On Brand
This isn't the first time that Vanguard has banned products, DeMaso says. A few years ago, the company banned trading of leveraged ETFs on its platform.
Vanguard even held off for several years on producing ETFs at all, based on Bogle's belief that ETFs encouraged too much of a trading mentality for long-term investors.
History seems to be repeating itself, wrote Balchunas.
“Vanguard’s anti-Bitcoin ETF stance is totally on brand and would’ve made Bogle proud.
That said, I think they will soften in the coming years as they build their advisory biz. They’ll need to have access to alternatives.”
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