The Blubber

Per Morningstar:

As you’ve likely heard, the SEC recently approved the creation of bitcoin exchange-traded funds (ETFs). Before this decision, bitcoin buyers had two main options: create “wallets” on cryptocurrency exchanges or purchase shares of the Grayscale Bitcoin Trust (GBTC). The latter option had significant drawbacks. Unlike ETFs, which reliably align in price with their underlying assets, Grayscale’s fund often diverged significantly. However, with the SEC lifting its ban, Grayscale has since converted its fund into an ETF.

Additionally, the Grayscale fund carried much higher fees compared to the new bitcoin ETFs, making this a double win for bitcoin holders. Now, cryptocurrency enthusiasts can manage their assets in low-cost, well-regulated funds without worrying about exchange failures or lost wallet passwords. Operationally, there’s never been a more secure or convenient time to hold bitcoin.

Vanguard’s Stance

But not for Vanguard customers. The company has not only declined to create its own bitcoin ETF but also refuses to offer bitcoin ETFs from other providers on its brokerage platform. Those wanting to invest in cryptocurrencies must look elsewhere.

This decision has frustrated bitcoin advocates but earned my approval. My reaction isn’t personal—I don’t buy cryptocurrencies because they are speculative rather than true investments (an asset that doesn’t generate cash offers no value except the hope of selling it at a higher price). However, I have no issue with others who choose to speculate.

Vanguard’s Consistency

My endorsement of Vanguard’s decision is purely business-related. Throughout its history, Vanguard has often refrained from following industry fads, even when they were wildly popular. Consider these examples:

1. Government-Plus Funds: In the mid-1980s, these funds became an industry hit by selling call options on their bonds to supplement “income,” which was often just capital gains.
2. Tactical-Allocation Funds: After the 1987 Black Monday crash, competitors quickly launched funds claiming the flexibility to avoid the next market downturn.
3. Short-Term Multimarket Income Funds: Popular in the early 1990s, these funds quickly faded.
4. Internet Funds: All the rage in the late 1990s, these were the equivalent of today’s AI-focused funds.
5. 130/30 Funds: A trendy but short-lived category in the mid-2000s.

All these products eventually faltered. The first category failed so spectacularly it disappeared for three decades, only to reemerge recently as “covered call” bond funds. Categories three and five vanished entirely. Tactical-allocation funds persist but have performed poorly, lagging traditional allocation funds by about 2% annually. Internet funds, though eventually recovering after the tech bubble burst, took years to regain their footing and had few shareholders left by the time they succeeded.

The Right Call

By steering clear of such trends, Vanguard has stayed on the right side of history. Its refusal to adopt bitcoin ETFs aligns with this philosophy of prioritizing long-term investment principles over speculative opportunities. For Vanguard and its customers, sometimes the best decision is simply to say no.