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OPINION

Updated January 20th, 2024 at 12:51 IST

Jack Bogle’s ghost haunts Vanguard’s crypto plans

Vanguard not offering clients new ETF's tracking Bitcoin price has opened up Jack Bogle.

RepublicAnita Ramaswamy
Crypto exchage
Representative | Image:Freepik
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Gathering dust. Five years after Jack Bogle’s passing, his words still haunt the asset management giant he founded. Vanguard’s refusal to provide its clients newly approved exchange-traded funds that track bitcoin’s price evokes Bogle’s advice to money managers: “Don’t do something. Just stand there.” But it stands in contrast to larger rival BlackRock, which is offering the funds, including one of its own. Given the highly competitive nature of passive asset management, Vanguard’s cautious mindset risks leaving it in the dust.

A surge in the popularity of low-cost exchange-traded funds has pushed asset managers into a race to differentiate themselves. BlackRock, for example, inked a $12.5 billion deal last week to grow into the infrastructure business. Expansion is crucial to such firms, which make much of their revenue from charging customers very low fees on their assets. Filings suggest that BlackRock made less than one cent for every dollar it managed in 2022.

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By barring clients on its platform from investing in spot bitcoin ETFs, privately held Vanguard is staying firm in its view that cryptocurrency products don’t belong in a balanced portfolio. There is reputational risk, perhaps, if the industry goes completely sideways. Plus this isn’t the first faddish trap that Vanguard has avoided. In January 2019 it banned leveraged ETFs for similar reasons, which hasn’t seemed to hamper its business: Its assets under management swelled by roughly $3 trillion since, as of last July.

Still, BlackRock looks to be growing faster, having added more than $4 trillion in assets since the start of 2019. Plus the bitcoin gamble, on the face of it, is already paying off. The behemoth led by Larry Fink attracted more than $1 billion into its bitcoin ETF in the first week of trading. If Fink can secure regulatory approval for an ETF tracking ether, the second-largest cryptocurrency, BlackRock could get another boost to its coffers as soon as this year. And fee income isn’t the only benefit it stands to reap. Getting comfortable with the blockchain technology underlying crypto could help BlackRock streamline other parts of its business, for example by tracking other assets on a digital ledger, a use case that even bitcoin skeptic and JPMorgan boss Jamie Dimon sees as valuable.

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Vanguard launched its first exchange-traded shares in 2001 and grew to be one of the world’s largest ETF providers despite Bogle’s longtime disdain for such products. Launching a Vanguard-branded crypto fund may be a step too far for the staid firm, but offering access to other providers’ funds would at least keep the door open.

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Published January 20th, 2024 at 12:51 IST

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