Vanguard's Bitcoin & Crypto ETF Ban: Hypocrisy Exposed with 10% Stake in MSTR
"I think the worst part about the Vanguard thing was the hypocrisy" - Norm?
Vanguard, known for its conservative approach to investing, has long resisted the inclusion of crypto assets like Bitcoin and Ethereum ETFs on its platform.
While other major brokerages have embraced the growing demand for crypto exposure, Vanguard has done virtually everything possible to ban/block its investor base from getting direct exposure.
Oddly though, Vanguard allows its investors to buy MicroStrategy (MSTR) - a company that is essentially a leveraged Bitcoin vehicle (more volatility) with higher risk… and even odder is that Vanguard themselves own ~10% of all MSTR shares.
Comically: “No Bitcoin ETFs at Vanguard? Here’s Why” (Jan. 24, 2024 explanation from Vanguard)
Vanguard’s Stance on Crypto Assets (Bitcoin, Ethereum, etc.)
Vanguard has traditionally taken a conservative approach to investment product offerings, prioritizing:
Long-term focus: They emphasize buy-and-hold strategies over speculative or momentum-driven investing.
Low cost and broad diversification: They believe in building portfolios based on equities, bonds, and cash instruments.
Prudence and regulatory caution: Vanguard aims to avoid assets deemed too volatile, opaque, or unregulated.
Given these core tenets, Vanguard leadership has consistently viewed cryptocurrencies—and by extension, crypto ETFs—as too speculative and insufficiently grounded in traditional market fundamentals.
Despite the growing popularity and regulatory acceptance of Bitcoin spot ETFs elsewhere, Vanguard has declined to include these products on their platform.
Why does Vanguard ban Bitcoin, Ethereum, & crypto ETFs?
1. Perceived Speculative Nature
Vanguard often characterizes cryptocurrencies as highly volatile with no intrinsic cash flows.
From a traditional, fundamental analysis perspective, Bitcoin and Ethereum do not generate earnings or dividends, which makes them seem more akin to speculative commodities than investment-grade assets.
2. Fiduciary and Reputational Risk
The firm’s leadership recognizes the potential liability if retail investors allocate heavily to crypto-based ETFs, suffer large drawdowns, and subsequently blame the brokerage.
As a result, Vanguard takes a defensive stance to protect its brand from future backlash related to sudden market crashes, fraud incidents, or hacks in the crypto sphere.
3. Core Philosophy
Historically, Vanguard has avoided what it sees as “trend-chasing” products.
Their brand is deeply associated with slow, steady, broad-based investing rather than capitalizing on shorter-term fluctuations or excitement in new asset classes.
The Vanguard Paradox: No BTC ETF, Allow MSTR & Hold ~10% of MSTR
A.) MicroStrategy (MSTR) on Vanguard
Despite prohibiting direct crypto ETFs, Vanguard still allows clients to buy publicly traded shares of MicroStrategy.
This situation appears contradictory because MSTR is higher risk and higher volatility than spot BTC ETFs.
MSTR as a Leverage Proxy: MicroStrategy holds a substantial portion of its corporate treasury in Bitcoin, often financed through convertible debt or other leverage. As a result, when Bitcoin moves up or down, MSTR’s share price typically amplifies that movement, sometimes exceeding the volatility of Bitcoin itself by a factor of two or three.
Higher Volatility Than a Spot ETF: If Vanguard’s core argument against crypto ETFs is volatility and speculation, one could argue that MSTR is an even riskier vehicle. By owning MSTR, investors effectively gain leveraged Bitcoin exposure. In the event of a Bitcoin price crash, MSTR can fall faster and further than a regulated spot ETF might, exposing investors to potentially greater losses.
Higher risk of Losses: Although I’d classify MSTR as fairly low risk, it’s still much higher risk than spot BTC ETFs. Risks include: corporate viability/bankruptcy (debt via convertible notes), premium collapse risk, and share dilution risk. So Vanguard is offering you the riskier option.
B.) Vanguard’s Large Position in MSTR
Despite refusing to offer spot Bitcoin ETFs, Vanguard itself has become one of the largest institutional shareholders of MicroStrategy.
As of April 2024, Vanguard owns roughly 1,553,048 shares of MSTR, representing 10.35% of the company.
This position has risen significantly over time:
In early 2024, Vanguard held just over 1.15 million MSTR shares (about 7.77% of the company).
By April 2024, that stake had grown to over 1.55 million shares (10.35%).
MicroStrategy famously uses convertible debt and equity offerings to buy Bitcoin, effectively transforming itself into a leveraged BTC play.
Its stock price typically magnifies Bitcoin’s moves—if BTC rises 10%, MSTR might jump significantly more, but if BTC crashes, MSTR can plunge even harder.
From a volatility standpoint, MSTR is arguably riskier than a well-structured spot Bitcoin ETF:
Leverage effect – MSTR’s debt amplifies gains and losses.
Corporate premiums/discounts – MSTR can trade at valuations disconnected from its net Bitcoin holdings due to market speculation, operational performance, and sentiment toward management’s strategy.
Thus, Vanguard’s large MSTR stake is, in essence, a substantial bet on Bitcoin—yet the firm steadfastly blocks more direct, potentially lower-volatility (and more transparent) crypto ETF offerings.
Potential Downstream Effects of Vanguard’s Anti-Crypto Stance
1. Competitive and Reputational Risks
Losing Younger Investors: A growing cohort of Millennials and Gen Z view crypto allocations as a legitimate form of diversification. By not offering crypto ETFs, Vanguard risks appearing out of step with emerging investment trends. Over the next decade, a significant wealth transfer to younger generations could make crypto products more important to retain new client accounts.
Client Migration: Investors who want seamless access to crypto ETFs often switch to competitors that already embrace these products. This risk is heightened by the fact that many rival brokerages now offer direct spot Bitcoin ETFs, thereby positioning themselves as full-spectrum providers.
2. Portfolio Construction Limitations
Forced Use of Riskier Proxies: Investors on Vanguard’s platform who want crypto-like exposure but cannot buy a spot Bitcoin ETF may resort to MSTR or similar proxy stocks. Ironically, they may end up with greater volatility and risk than if they simply held a straightforward, low-fee crypto ETF.
Reduced Product Suite: Vanguard’s unwavering stance curtails the variety of products available on its platform, potentially lowering overall portfolio diversification options for certain clients.
3. Perception of Inconsistency
Because Vanguard simultaneously preaches diversification yet bans certain regulated crypto products, critics may question whether Vanguard’s policy is truly about investor protection or simply an extreme aversion to perceived speculative assets.
This tension could become a branding challenge if the next market cycle continues to entrench Bitcoin and Ethereum as mainstream assets.
3. Vanguard’s New Leadership: Could This Change?
Salim Ramji’s Background
Vanguard’s relatively new CEO previously held senior roles at a major competitor that explored (and sometimes launched) crypto-related ETF products. His background includes:
Overseeing large ETF business units
Being part of conversations around Bitcoin-oriented strategies
This has fueled speculation that Ramji might warm up Vanguard to digital assets over the next few years, especially if institutional acceptance of crypto accelerates.
Firm Culture vs. Market Pressures
Even a crypto-friendly executive faces institutional inertia at Vanguard, which is steeped in a conservative mindset. Any major policy reversal would likely require:
Strong internal consensus from the board and top committees
Persuasive data showing a more stable, regulated crypto environment
Clear signals from existing clients and advisors that the demand for crypto ETFs is overwhelming
Outlook: Will Vanguard Change Its Tune by 2030?
If Bitcoin and/or crypto become more mainstream, Vanguard will definitely change its tune by 2030.
If they’re the ONLY major brokerage that doesn’t offer crypto assets and crypto assets get mainstream and/or global adoption, they’ll be left behind because people will simply leave or invest elsewhere.
Factors That Could Prompt a Shift
Broader Market Acceptance: If Bitcoin and Ethereum continue to mature, stabilize, and garner acceptance among pension funds, sovereign wealth funds, and large corporate treasuries, Vanguard’s reservations may soften.
Regulatory Clarity: A well-defined legal and compliance framework for crypto assets reduces the perceived liability risk. Should regulators across multiple jurisdictions create robust guidelines, Vanguard might grow more comfortable.
Leadership and Competitive Pressures: If Vanguard’s leadership experiences mounting pressure from advisors, board members, and especially from external competition that is successfully offering crypto ETFs, the firm may revise its stance to remain competitive.
Potential Scenarios and Probability
Scenario A: Full Adoption by 2027
Vanguard offers a spot Bitcoin ETF or permits direct purchase of such ETFs on its platform within the next two to three years.
Estimated Probability: ~25%
Rationale: This would require a relatively rapid convergence of regulatory clarity, continued investor demand, and a marked shift in Vanguard’s leadership mindset.
Confidence Level: Moderate to Low
Scenario B: Gradual Introduction Between 2027 and 2030
Vanguard remains cautious but eventually capitulates if the asset class becomes too large to ignore or is widely integrated into standard investment models.
Estimated Probability: ~40%
Rationale: Past examples of Vanguard adopting new products typically show a longer lag than peers. They may enter the space if ignoring it starts to significantly affect their market share.
Confidence Level: Moderate
Scenario C: Continued Refusal Until Post-2030
Vanguard maintains a stubborn stance, citing volatility, brand protection, and adherence to its core philosophy.
Estimated Probability: ~35%
Rationale: Vanguard’s history of steering clear of “hot” or “unproven” products is deep-rooted. They could persist in disallowing direct crypto access even if it means forgoing certain market segments.
Confidence Level: Moderate
Likely Outcome
The most probable outcome is that Vanguard will continue its cautious approach, possibly reconsidering once regulatory frameworks are more robust and crypto volatility normalizes.
A partial or phased introduction between 2027–2029 seems plausible, likely arriving in the form of a pilot or carefully curated set of offerings rather than a full embrace of multiple crypto ETFs.
Final Take: Vanguard & Bitcoin Hypocrisy (MSTR)
I think Vanguard will eventually get with the times and shift to adding BTC/ETH ETFs, but it may take a couple years.
With the incoming crypto-friendly Trump admin, I’d guess that it happens under his term… especially considering the new CEO of Vanguard is a guy who oversaw crypto ETF creation at BlackRock.
Vanguard is currently catering to an old-school-type of highly-conservative investor that is mostly focused on things like the S&P500 and dividend baskets.
If they want to stay competitive with the upcoming generation of wealth transfer (which they probably do), it’s only a matter of time before we see some crypto ETFs added (probably their own e.g. VBTC or BTCV or something).
I still think we should point out the hypocrisy that Vanguard: (1) allows MSTR buys but has zero mechanism to buy spot crypto ETFs (which are inherently less volatile and lower risk) AND (2) holds ~10% of MSTR (this is funny).
If you have Vanguard but are dead-set on a crypto ETF, just go with a different brokerage e.g. Fidelity, Schwab, Robinhood, etc. If you don’t want another brokerage… just target MSTR but be aware of the volatility and risks.