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Vanguard’s Bitcoin Paradox: Ditching ETFs While Betting Big on MicroStrategy

Last Updated January 15, 2024 12:20 PM
Giuseppe Ciccomascolo
Last Updated January 15, 2024 12:20 PM

Key Takeaways

  • Vanguard said it won’t offer spot Bitcoin exchange-traded funds approved last week.
  • It is also investing a huge amount of dollars in MicroStrategy, a company that has amassed a large amount of Bitcoin.
  • Why does Vanguard ditch ETFs but invest in MSTR?

Big money manager Vanguard Group may have shunned spot Bitcoin exchange-traded funds (ETFs), but it is quietly making a big bet on the cryptocurrency through its investment in MicroStrategy, the enterprise software company that has amassed a large Bitcoin holding.

This paradoxical stance highlights the growing debate over Vanguard’s view of Bitcoin as an investment asset. Vanguard’s decision to invest in MicroStrategy signals that it is taking Bitcoin seriously, but its cautious approach to ETFs suggests that it is still grappling with the cryptocurrency’s risks.

Vanguard Ditches Bitcoin ETFs

Vanguard Group’s brokerage division has opted against facilitating trading in ETFs directly tied to Bitcoin. Although the awaited approval of Bitcoin ETFs has sparked heightened demand for these investment instruments, individual firms retain the discretion to determine their participation.

This cautious stance is frequently linked to the inherent volatility of the cryptocurrency asset class, prompting firms like Vanguard to prioritize long-term returns over potential short-term fluctuations.

As a result, some Vanguard customers have shifted their investments to Fidelity, seizing the opportunity presented by the latter’s embrace of the new ETFs. In fact, as previously reported by CCN, Yuga Cohler, a senior engineering manager at Coinbase, is among a group of individuals signaling their intent to shift their Roth 401(k) savings from Vanguard to Fidelity.

Notably, Fidelity stands out as an issuer of one of the ten recently launched Bitcoin ETFs on January 11, reflecting a more proactive approach in incorporating cryptocurrency products into their investment offerings.

Stake In MicroStrategy

What’s intriguing is Vanguard’s paradoxical position. Despite its cautious stance on ETFs and Bitcoin due to perceived risks, it emerges as a significant investor in MicroStrategy. MicroStrategy, led by Michael J. Saylor, focuses extensively on Bitcoin trading. Vanguard Group, as per September 2023 data from Yahoo Finance, held 1,126,980 MSTR shares, securing its position as the second-largest institutional shareholder with an 8.24% ownership stake.

MicroStrategy shares also feature in various Vanguard investment funds, including the Vanguard Total Stock Market Index Fund, the Vanguard Small-Cap Index Fund, the Vanguard Extended Market Index Fund, and the Vanguard Small-Cap Growth Index Fund.

Source: Yahoo Finance
Vanguard’ stake in MicroStrategy.

Notably, MicroStrategy and its subsidiaries have accumulated 189,150 BTC over the past few years, valued at approximately $5.9 billion. The heightened interest in Bitcoin ETFs in 2023 propelled MSTR’s stock price. This led some analysts to dub it as “essentially a leveraged Bitcoin ETF.”

MSTR Is Better Than Bitcoin

Bill Miller IV, Chief Investment Officer of Miller Value Partners, underscored  the significance of these ETFs. He said they are a major stride for institutional capital entering the cryptocurrency domain.

While acknowledging their importance, he presented an alternative investment that he believes outshines the benefits of a spot Bitcoin ETF – MicroStrategy (MSTR).

According to Miller, MicroStrategy offers distinct advantages over a spot Bitcoin ETF. Notably, it boasts higher liquidity and, as the world’s largest Bitcoin owner, avoids associated fees. Miller emphasized the value of being the foremost holder of a new technological asset, citing long-term potential.

Additionally, he said MicroStrategy’s CEO is a further appeal. Sailor is a substantial shareholder with significant personal Bitcoin holdings and a robust technological background,.

Discussing MicroStrategy’s unique business model, Miller noted its flexibility to adjust its value by selling shares to purchase Bitcoin. It also buys back shares based on market conditions. This adaptable approach, he argued, benefits ongoing shareholders and contributes long-term value.

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