A Beginner's Guide: Investing In Bitcoin With Vanguard

Investing in Bitcoin has become an increasingly popular topic, but how do you go about it? One option is to use Vanguard, an American investment management firm that provides a range of mutual funds, ETFs, and other financial products. While Vanguard does not currently offer direct investment in Bitcoin, there are other ways to gain exposure to this cryptocurrency through the platform. In this article, we will explore the different options available for investing in Bitcoin through Vanguard and discuss the benefits and drawbacks of each approach. We will also look at Vanguard's stance on crypto-related products and whether they plan to offer direct investment in the future.

Vanguard does not currently offer direct investment in Bitcoin

Instead of direct investment options, Vanguard provides indirect exposure to the crypto market through crypto-related stocks, mutual funds, and ETFs. For example, investors can buy stocks such as Grayscale Bitcoin Trust (GBTC), Coinbase (COIN), or the Bitwise 10 Index Fund (BITW). However, these options may be less transparent and more costly than investing directly in cryptocurrencies.

Vanguard's future plans for cryptocurrency investment products remain uncertain. The company has not been forthcoming about its intentions, but it seems likely that it will eventually offer some form of cryptocurrency investment product. In the meantime, investors interested in cryptocurrencies can explore alternative platforms and exchanges to enter the digital currency market.

Vanguard does not plan to create a Bitcoin ETF

Vanguard's leaders, Janel Jackson and Andrew Kadjeski, have stated that the company does not plan to launch its own bitcoin ETF or any crypto-related products. They believe that crypto is more of a speculation than an investment and does not have enduring investment merit. Crypto is also inconsistent with Vanguard's principles and ethos, as it does not invest in asset classes with underlying cash flow.

Jackson and Kadjeski also point out that crypto is an immature asset class with little history, no inherent economic value, no cash flow, and can create havoc within a portfolio. Its extreme volatility makes it unfit for long-term investing.

Vanguard's decision has been met with resistance from customers, but the company stands by its philosophy and past practice of putting investors' long-term needs first.

Vanguard does not offer other issuers' crypto-related products on its brokerage platform

While Vanguard does not offer direct options for buying or trading cryptocurrencies, such as Bitcoin, it does provide traditional investment vehicles like stocks, bonds, and mutual funds. However, it is important to note that Vanguard does not offer other issuers' crypto-related products on its brokerage platform. This means that investors interested in the crypto market through Vanguard will have to consider investing in firms significantly involved in the crypto sector or exchange-traded funds (ETFs) that follow the cryptocurrency market's performance.

Vanguard's decision to not offer crypto-related products on its brokerage platform is rooted in its commitment to putting investors' interests first. As a firm and brokerage platform, Vanguard is purposely structured to meet the needs of its investor-owners, most of whom are long-term, buy-and-hold investors.

Vanguard's view is that crypto is more of a speculation than an investment. This perspective is shared by John Rekenthaler, vice president of research for Morningstar Research Services LLC, who states that cryptocurrencies are speculations rather than investments. He argues that if an asset cannot generate cash, there is no reason to hold it except for the hope of selling it to a higher bidder.

Vanguard's leadership also highlights the volatile nature of cryptocurrencies, with double-digit price drops being common. Such volatility can create havoc within a portfolio, and Vanguard's products and services are designed to help investors save more, trade less, and adopt a long-term approach rather than chasing trends.

By not offering other issuers' crypto-related products on its brokerage platform, Vanguard remains consistent with its philosophy and past practice of putting investors' interests first. This decision aligns with Vanguard's mission to give investors the best chance for investment success.

Vanguard offers indirect exposure to crypto through crypto-related stocks and ETFs

While Vanguard does not offer direct investment options for cryptocurrencies, it does provide indirect exposure to the digital asset market through crypto-related stocks and ETFs. This means that investors can gain exposure to the performance of the cryptocurrency market without directly purchasing or trading cryptocurrencies.

Some examples of crypto-related stocks and ETFs offered by Vanguard include the Grayscale Bitcoin Trust (GBTC), Coinbase (COIN), and the Bitwise 10 Index Fund (BITW). The Bitwise 10 Crypto Index Fund (non-OTC Trust) is considered the best overall Crypto ETF available through Vanguard, as it provides investors with access to the top 10 cryptocurrencies by market capitalization, excluding stablecoins. This ETF enables investors to gain diversified exposure to the asset class.

It is important to note that investing in crypto-related stocks and ETFs through Vanguard may have some drawbacks. These investment vehicles may be less transparent, and the fees and costs involved may be higher than other options. Additionally, Vanguard's crypto-related offerings do not have the same price reliability as ETFs, and they often carry a much higher expense ratio.

As an alternative to investing in crypto-related stocks and ETFs through Vanguard, investors can consider using a FinCEN-licensed crypto exchange, such as Uphold, which offers more competitive fees and access to a broader range of cryptocurrencies.

Vanguard's crypto ETFs carry high management fees

While Vanguard ETFs are commission-free and can be bought and sold online without paying a fee, they are still subject to management fees and expenses. These fees vary depending on the ETF and can be found in each ETF's prospectus.

Vanguard's average mutual fund and ETF expense ratio is 77-82% less than the industry average. For example, as of December 31, 2023, Vanguard's average expense ratio was 0.08% compared to the industry average of 0.44%.

In addition to management fees, there are other costs associated with Vanguard ETFs, such as bid-ask spreads and account service fees. The bid-ask spread is the difference between the highest price a buyer is willing to pay and the lowest price a seller is willing to accept. For Vanguard ETFs, the bid-ask spread typically ranges from $0.01 to $0.25 but can be wider in volatile markets. Account service fees for Vanguard brokerage and mutual fund accounts are $25 annually.

It's important to carefully review the commission and fee schedules to understand all the costs associated with investing in Vanguard ETFs.

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