Vanguard Under Fire As Clients Flee To Trade Bitcoin ETFs Elsewhere

The launch of the first U.S. spot bitcoin exchange-traded funds (ETFs) was met with fanfare across much of the financial services industry. Yet stalwart low-cost asset manager Vanguard has controversially barred its brokerage clients from purchasing these hot new products, triggering customer defections.

Keypoints

• Vanguard is blocking its customers from purchasing the newly launched spot bitcoin ETFs.
• Attempts to buy BlackRock’s IBIT or Grayscale’s GBTC through Vanguard brokerage accounts failed.
• Vanguard said crypto doesn’t align with its focus on stocks, bonds, and cash as building blocks for long-term portfolios.
• Some Vanguard customers expressed frustration and transferred accounts to crypto-friendly rivals like Fidelity.
• Industry experts predict Vanguard will lose credibility and assets due to missing out on the bitcoin ETF opportunity.

Attempts to buy flagship bitcoin ETFs like BlackRock’s IBIT or Grayscale’s GBTC through Vanguard’s platform failed with error messages citing “regulatory restrictions.” The company confirmed it has no plans to make spot crypto ETFs purchasable for clients.

The rationale cited was that cryptocurrencies lack intrinsic value and their volatility runs counter to Vanguard’s aim of generating positive long-term returns. Crypto overall does not align with Vanguard’s core offerings of stocks, bonds, and cash. The company has long shunned digital assets in favor of traditional asset classes.

Just transferred my 401k from Vanguard to Fidelity. It took about 15 minutes.

If you have an account with a broker currently blocking access to #bitcoin ETFs, close it and get out.

Make these boomers hurt

— Julian Fahrer (@Julian__Fahrer) January 11, 2024

Industry reaction was swift, as advocates argued Vanguard was limiting investor choice and lagging behind more forward-thinking rivals. In protest, some customers withdrew funds to transfer to crypto-friendly competitors like Fidelity.

One such customer was Julian Fahrer, co-founder of crypto product review site Apollo. He requested to shift his Vanguard 401(k) account, which he claimed took just 15 minutes to initiate. Others expressed intent to follow suit across social media.

The defections speak to growing mainstream acceptance of crypto as Vanguard customers vote with their wallets. Legacy firms launching spot bitcoin ETFs like BlackRock, Galaxy Digital, and Fidelity reaped benefits. Fidelity’s move to allow spot bitcoin ETF trading paid dividends in particular.

Good morning to everybody except Vanguard.

????Close your account! pic.twitter.com/zl9fN7TmG2

— Bitcoin Archive (@BTC_Archive) January 12, 2024

Experts say Vanguard’s hardline stance will hurt its credibility and cost it assets. Ric Edelman, founder of Digital Assets Council of Financial Professionals, called it “paternalistic” and an obstacle to investor choice. He expects Vanguard will capitulate once assets reach a critical mass.

For now, Vanguard is staying defiant. Its $7 trillion under management still dwarfs leading crypto advocates like Fidelity. Time will tell whether shunning an ascendant asset class is a prudent move or fossilized thinking that will cause customers to flock elsewhere.

Morgan Stanley, Merrill Lynch and other wirehouses also remain uncommitted to offering spot bitcoin ETF access. Yet their reticence contrasts with growing client demand. This presents an opportunity for more progressive platforms welcoming crypto assets to capture mindshare and market share.