Vanguard Warms Up to Crypto, Sort Of

It’s the hottest toy on the market.

Vanguard surprised investors this month when it finally allowed ETFs and mutual funds holding mostly crypto to be traded on its platform, but that’s not to say the low-cost megafirm is all in. It’s still very hesitant about digital currencies, as it has no plans to create its own crypto funds, introduce them to model portfolios, or have its advisors recommend them. “It’s difficult for me to think about Bitcoin as anything more than a digital Labubu,” said John Ameriks, head of Vanguard’s quantitative equity group, referencing the trendy monster dolls that have taken the retail world by storm. 

Still, it’s becoming just as hard for the firm to deny crypto’s presence. By some estimates, roughly a fifth of Americans own it, and some clients want to hold crypto funds alongside their traditional investments. “It made sense to relent on this and let this move forward,” Ameriks said during a Bloomberg panel last week.

Building Blocks

Vanguard isn’t on team crypto just yet, but it does seem to be a blockchain fan. Ameriks said the underlying technology has the potential to reduce costs, speed up operations and create a better client experience overall. “Anybody that’s been around the middle- or back-office at any fund firm understands some of the inefficiencies in there,” he said. “We had an early proof of concept where we’re using blockchain to transmit index data back and forth. It was great to have a centralized ledger.”

Vanguard is one of the world’s largest asset managers, by most measures, and holds considerable sway in the wealth management industry:

• The firm serves about 50 million customers and has roughly $12 trillion in global AUM.
• The Vanguard S&P 500 ETF (VOO) surpassed State Street’s SPDR S&P 500 ETF Trust (SPY) earlier this year as the largest ETF on the market, currently holding more than $820 billion in assets.

The Times They Are A-Changin’. Back in 2017, late Vanguard founder John Bogle told people to “avoid crypto like the plague.” That sentiment makes sense given Vanguard’s low-cost, long-term investing philosophy. However, Bogel and the firm originally had similar thoughts on ETFs in general, believing they encouraged short-term trading. Now Vanguard operates the biggest ETF in the world. Who knows, maybe in a few years it’ll have its own crypto fund rivaling BlackRock’s IBIT.