Vanguard And Bitcoin: How To Invest In Crypto?

Bitcoin is a highly volatile and speculative digital asset stored on blockchain technology, which serves as a type of currency or store of value. While Vanguard does not offer a bitcoin fund, it does offer other investment options that are impacted by crypto, such as the Vanguard Information Technology ETF (VGT) and the Vanguard Total Stock Market ETF (VTI). These funds provide exposure to the crypto mining company Riot Blockchain and have experienced significant returns with lower risk compared to Bitcoin. As cryptocurrencies become more mainstream, Vanguard will continue to monitor their development and consider the best path forward for investors.

Vanguard's stance on Bitcoin

Vanguard CEO Tim Buckley has stated unequivocally that "You will never see a fund from Vanguard on bitcoin." Buckley cites the lack of underlying economic value in Bitcoin as the reason for this stance, comparing it to gold, another asset class that Vanguard avoids. Buckley also highlights the volatility of Bitcoin and other cryptocurrencies, which makes them impractical as a medium of exchange and encourages impulsive buying and selling.

Vanguard's view is that the long-term investment case for cryptocurrencies is weak due to their highly speculative nature. The company identifies several risks associated with investing in cryptocurrencies, including their volatility, the lack of intrinsic value or dividends, the lack of regulation, and cybersecurity concerns.

However, Vanguard does have indirect exposure to the crypto market through its ETFs (Exchange-Traded Funds). For example, the Vanguard Total Stock Market ETF (VTI) and the Vanguard Extended Market ETF (VXF) have allocations to crypto mining company Riot Blockchain. Additionally, Vanguard uses Symbiont's blockchain technology for foreign exchanges, demonstrating its involvement in the crypto atmosphere.

While Vanguard does not currently offer a cryptocurrency ETF, the development of one by fund providers like Grayscale may influence Vanguard to follow suit in the future.

Bitcoin's volatility

While Vanguard does not offer investment in Bitcoin, it is important to understand the volatility of this cryptocurrency. Bitcoin is considered a volatile asset, and its value can fluctuate significantly over time. This volatility is driven by speculation in the market, as crypto investors bet on Bitcoin's price movement to make profits.

Volatility is a measure of the variation in the price of a financial asset over time. In the context of Bitcoin, its volatility is measured by how much its price deviates from the average price over a specific period. Bitcoin's volatility is higher than that of traditional asset classes, making it a risky investment. The more volatile an asset, the less attractive it becomes to potential investors, as it indicates a higher level of risk.

However, it's worth noting that Bitcoin's volatility has been declining and is expected to continue doing so. This decline in volatility could indicate a growing acceptance of Bitcoin as it matures, and it has already surpassed some prominent individual securities in terms of stability.

Despite the risks associated with volatility, some investors may welcome it. Volatility can bring about high positive returns, and historically, investors have been well compensated for Bitcoin's volatility. Additionally, while traditional finance equates volatility with risk, it can be viewed as either "good" or "bad" depending on the direction of returns.

In conclusion, while Bitcoin is a volatile asset, its volatility is not uncommon for a new and decentralised currency. As it continues to mature, its volatility is likely to decrease further, and investors who embrace risk may find opportunities in its fluctuations.

Vanguard's crypto-related ETFs

Vanguard does not currently offer crypto-related ETFs or any other crypto-related products. In a webcast, Vanguard Chairman and CEO Tim Buckley and Chief Investment Officer Greg Davis confirmed that Vanguard does not plan to offer a bitcoin ETF or change its mind about crypto investments unless the asset class changes. Buckley and Davis emphasised that Vanguard's investment philosophy centres on long-term investing and tuning out short-term trends. They consider bitcoin to be a speculative asset that is too volatile for long-term portfolios.

Vanguard's global head of ETF Capital Markets and Broker & Index Relations, Janel Jackson, and head of Brokerage & Investments, Andrew Kadjeski, further explained that Vanguard does not view crypto as a viable investment option due to its lack of history, inherent economic value, and cash flow. They also noted that the extreme volatility of cryptocurrencies, like bitcoin, can drastically increase the risk profile of a traditional balanced portfolio.

While Vanguard does not offer crypto-related ETFs, it acknowledges the impact of cryptocurrencies in the investing world and recognises the potential of blockchain technology beyond its application in cryptocurrencies.

Vanguard funds that benefit from crypto mining

While Vanguard does not offer cryptocurrencies as an investment option, it has been reported that the company has taken significant stakes in two bitcoin miners, Marathon Digital Holdings and Riot Blockchain. This makes Vanguard a bitcoin mining investor, along with BlackRock and Fidelity Group.

In terms of Vanguard funds that benefit from crypto mining, one option is the Vanguard Information Technology ETF. This fund is considered to be one of the higher-risk ETFs, but it has also seen substantial gains over the years. The fund includes stocks from the information technology sector, which is known for its high volatility but also its potential for explosive growth.

Another option for investors interested in crypto mining is the Vanguard World Fund. This fund is a high-risk, high-reward investment option that has experienced significant returns.

It is important to note that investing in cryptocurrencies carries a substantial amount of risk due to their highly volatile and speculative nature. Vanguard's investing philosophy emphasizes long-term investing and tuning out short-term trends, which may not align with the impulsive buying and selling encouraged by cryptocurrencies.

The future of Vanguard and crypto

As of 2021, Vanguard does not have any cryptocurrency-specific exchange-traded funds (ETFs). However, Vanguard does have a few funds with exposure to crypto mining companies, such as Riot Blockchain. These include the Vanguard Total Stock Market ETF (VTI) and the Vanguard Extended Market ETF (VXF). Vanguard also uses Symbiont's blockchain technology for foreign exchanges, so it is involved in the crypto atmosphere in this way.

In the past, Vanguard's CEO, Tim Buckley, has expressed his opinion that Vanguard will never offer a bitcoin fund. Buckley stated that Vanguard tends to stay away from assets that don't have underlying economic value, and he does not believe that bitcoin has this. He compared bitcoin to gold, another asset class that Vanguard avoids.

However, despite Vanguard's current lack of direct involvement with cryptocurrencies, the increasing mainstream adoption of cryptocurrencies may influence Vanguard to develop its own cryptocurrency ETF in the future. For example, the recent Coinbase IPO caused Bitcoin's value to surge, and the Grayscale Bitcoin Investment Trust is listed on the OTC Pink Sheets market, which may push Vanguard to create a cryptocurrency ETF.

In summary, while Vanguard does not currently offer any cryptocurrency-specific investment options, the company is not completely divorced from the world of crypto. The future of Vanguard and crypto may involve the development of a cryptocurrency ETF, but this is not guaranteed, especially considering Vanguard's CEO's stance on bitcoin.

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