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Vanguard, Merrill, Others Blocking Customers From Spot Bitcoin ETFs: Are they Illegal, or Too Risky?

Last Updated January 12, 2024 12:55 PM
Teuta Franjkovic
Last Updated January 12, 2024 12:55 PM

Key Takeaways

  • Vanguard and Merrill Edge have decided not to offer trading in spot Bitcoin ETFs for now.
  • Charles Schwab and JPMorgan have embraced the opportunity to offer Bitcoin ETFs.
  • The inaugural day of trading for spot Bitcoin ETFs was a resounding success.

Despite the recent US regulatory approval of nearly a dozen Bitcoin exchange-traded funds (ETFs), many investors are finding these approved ETFs are not readily available for trading.

Vanguard Group ‘s brokerage arm has decided not to offer trading in ETFs that invest directly in Bitcoin. On the other hand, Bank of America’s Merrill Edge is still deliberating  over whether to provide this service, as revealed by a source familiar with the situation who requested anonymity.

Vanguard, Merrill Edge Opt Out of Spot Bitcoin ETF Trading

The long-awaited approval of these Bitcoin ETFs has led to a surge in demand for these investment vehicles. However, despite the green light from the United States , it ultimately falls to individual firms to decide whether they wish to offer trading in these Bitcoin-linked products. This hesitance is often attributed to the volatility associated with the cryptocurrency asset class, leading some firms to exercise caution before diving into this market. Vanguard said high volatility would be bad for its generating long-term returns.

The company told CCN:

“While we continuously evaluate our brokerage offer and evaluate new product entries to the market, spot Bitcoin ETFs will not be available for purchase on the Vanguard platform. We also have no plans to offer Vanguard Bitcoin ETFs or other crypto-related products. Our perspective is that these products do not align with our offer focused on asset classes such as equities, bonds, and cash, which Vanguard views as the building blocks of a well-balanced, long-term investment portfolio.”

Merrill did not immediately respond to a request for comment.

In 2023, among the 14 issuers applying for a spot Bitcoin ETF, Vanguard was notably absent. This absence and their subsequent decisions regarding cryptocurrency products have led some to consider transferring their funds to different platforms.

Vanguard Customers Transfer Funds to Fidelity

Tony Spencer, who identifies as a Vanguard customer, reported  that a company spokesperson explained Vanguard’s stance on not permitting the purchase of spot Bitcoin ETFs. According to Spencer, the spokesperson stated that such products do not align with Vanguard’s investment philosophy.

Furthermore, Spencer claims Vanguard restricts its investors to only selling the Grayscale Bitcoin Trust, Grayscale’s flagship Bitcoin product. Interestingly, this product has recently been transformed into a spot ETF, adding another dimension to Vanguard’s approach to cryptocurrency investment options.

Yuga Cohler, a senior engineering manager at Coinbase, is one of several individuals who have expressed intentions  to transfer their Roth 401(k) savings from Vanguard to Fidelity. This move comes in response to Vanguard’s stance on cryptocurrency investment options. Fidelity is notably among the issuers of one of the 10 spot Bitcoin ETFs that were launched on January 11, indicating a more proactive approach to including cryptocurrency products in their investment offerings.

Charles Schwab Embraces Spot Bitcoin ETF Trading

While some firms remain cautious, others are embracing the opportunity. Charles Schwab is among those taking the plunge, with a spokesperson confirming that the company will offer trading in Bitcoin ETFs across various exchanges.

James Kostulias, the head of trading services at Schwab, emphasized  the significance of this development in an interview. He highlighted the importance of the validation process for the underlying instrument and the comprehensive regulatory and procedural rigor involved in becoming an ETF. This step is, according to Kostulias, a crucial part of establishing the legitimacy and reliability of these new investment vehicles.

According to Fox Business reporter Eleanor Terrett , Merrill is currently taking a cautious approach towards spot Bitcoin ETFs. The institution is reportedly observing the efficiency of the trading of these ETFs before making a decision on offering the purchase of Bitcoin-related products.

In contrast, spot Bitcoin ETF trading has already been made available on JPMorgan’s brokerage platform. Significantly, JPMorgan acts as an authorized participant of the iShares Bitcoin Trust ETF, issued by BlackRock. Despite this, the bank, led by CEO Jamie Dimon, has taken steps to inform prospective investors of the risks involved. Dan McArdle, co-founder of blockchain intelligence platform Messari, shared screenshots  indicating that JPMorgan has issued a risk disclosure for investors contemplating trading orders in these ETFs.

Trading Kicks Off with Impressive Volume, More Approvals Pending

The much-anticipated inaugural day of trading for spot Bitcoin ETFs occurred on January 10. This came after an extended period of regulatory anticipation, assessment and approval.

On their first day, trading volumes for spot Bitcoin ETFs reached an impressive $4.5 billion. A significant portion of this trading activity was concentrated in the ETFs offered by such major players such as BlackRock, Grayscale, and Fidelity.

Additionally, the SEC gave the green light to the 19b-4 and Form S-1 applications for several other entities. These include: ARK 21Shares, Invesco Galaxy, VanEck, WisdomTree, Valkyrie, Bitwise, and Franklin Templeton, marking a broad expansion in the availability of cryptocurrency investment products. However, Hashdex is still awaiting  approval for its S-1 application, highlighting the ongoing developments and approvals in the burgeoning space of cryptocurrency ETFs.

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