Vanguard is an 800-pound gorilla in the mutual fund and ETF jungle. While its biggest competitors have launched bitcoin ETFs, Vanguard stands apart in its opposition to bitcoin in particular and cryptocurrency in general.

Will Vanguard’s stance pay off in the long run? Or will it be a strategic blunder that causes Vanguard to fall behind its peers?

That’s the question I’m going to try to unravel today.

While the answer to that question depends to some extent on what becomes of bitcoin—whether it implodes or thrives—I will try to leave that aspect aside. I can’t avoid the topic entirely, but this isn’t another article where someone tries to convince you that you should or shouldn't buy bitcoin.

Instead, I want to educate you on bitcoin, arm you with the knowledge to debunk some of the nonsense I see in the media and give you my take on the long-term implications for Vanguard, the company. (I then hope to get back to more regularly scheduled Vanguard fund and ETF programming.)

The short story is that Vanguard’s opposition to bitcoin isn’t the existential threat to the firm some are making it out to be. But let’s start at the (very) beginning—what is bitcoin?

What Is Bitcoin?

Bitcoin is the original cryptocurrency. I could throw a bunch of jargon at you to explain bitcoin—crypto mining, decentralized finance, blockchain, etc.—but here’s what you need to know.

Bitcoin was invented in 2008 as a currency for a new payment system—think of it as cash for online transactions. What made bitcoin “different” is that the payment system’s ledger (the record of who owned what and when) is maintained not by a government or other institution but by the system's users. Anyone can read the ledger (called the blockchain) at any time.

Nobody really uses bitcoin as a currency these days, though—it is too volatile, and processing transactions is slow and costly. Instead, bitcoin has endured as what some call a “store of value”—think gold 2.0.

The catch is that when you own a bitcoin, all you have is a line item in bitcoin’s ledger. You don’t hold a physical coin or earn any interest. And bitcoin isn’t a company or business that generates earnings.

Bitcoin only has value because other people think it has value. Gold, at least, derives some value from being used in jewelry and industrial processes. Plus, gold has 2,000 years of history under its belt. Bitcoin has only been around for 15 years.

I believe that this explains why bitcoin has been so volatile—both up and down. “We” are collectively trying to decide if bitcoin has any value at all. If the prevailing wisdom is that bitcoin is valuable, its price can rise dramatically. But the tide can and has turned dramatically in the other direction.

(If you want to go deeper into bitcoin, I can think of no better resource than Matt Levine’s The Only Crypto Story You Need.)

That’s what bitcoin is.

My Stance on Crypto

I’m not looking to get into a bitcoin debate, but at this point, I feel it’s my duty to state my view on cryptocurrencies clearly.

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