Vanguard is not buying the trend. This is something it made clear amid the regulatory approval of spot Bitcoin (BTC) exchange-traded funds (ETFs) in the US and their successful launch that garnered half a billion dollars of inflows in their first two days of trading.
According to the latest statement of the investment giant, it’s not allowing a spot Bitcoin ETF in its offerings because the financial instrument is based on “an immature asset class that has little history, no inherent economic value, no cash flow, and can create havoc within a portfolio.”
Is this really the case? Let’s break down what Vanguard just said about Bitcoin.
An immature asset class that has little history
Bitcoin only goes as far back as January 2009 but is now comparable to gold in how it is utilized as a hedge against geopolitical and economic uncertainties. This is now something that traditional finance (TradFi) powerhouses are gradually recognizing.
One of the huge critics and now an ally of the digital asset is BlackRock. The company’s CEO Larry Fink has gone from telling people that Bitcoin is “an index of money laundering” to aligning it with gold.
“I believe it goes up if the world is frightened, if the people have fearful geopolitical risks, they’re fearful of their own risks,” Fink commented in an interview with CNBC following the US Securities and Exchange Commission’s (SEC) nod for their iShares Bitcoin ETF (IBIT). “It’s no different than what gold represented over thousands of years. It is an asset class that protects you.”
No inherent economic value
The pseudonymous developer of Bitcoin, going by the name Satoshi Nakamoto, envisioned Bitcoin as both a store of value and a unit of exchange. However, its volatility over the years has put its basic purpose in question.
Back in 2019, Bitcoin finished below $7,200. Two years later, it went on an all-time high of $68,789. Now, it is trading at around $42,100.
While Sats or Satoshis, BTC’s smallest unit, is now widely used for small purchases and fund transfers, holders and merchants are still reluctant to adopt Bitcoin for large transactions due to its major price swings. Nevertheless, Bitcoin has found greater utility in jumpstarting economies as shown by El Salvador and how it is being employed to help the unbanked in rural African communities.
No cash flow
Indeed, Bitcoin doesn’t generate cash flows because it neither offers dividends nor yields, but so is Fiat currency if it only stays in one’s pocket and is not invested. Unlike the latter though, the former has a known supply cap compared to the government’s incessant money printing. Likewise, BTC has now proven itself as a long-term haven for capital preservation due to its inflation-proof trait and rising value over time.
Can create havoc within a portfolio
Vanguard is correct in saying this because Bitcoin tends to go on major price swings. But then again, BTC’s volatility can only be felt if one trades it on a short-term basis.
Bitcoin’s true value and stability can only be seen when one zooms out of the charts. Since its inception, BTC has constantly displayed price appreciation growing from a fraction of a dollar to what it is worth today.
Imagine this, 10,000 BTC was only worth two Papa John’s pizzas back in 2010. Fast-forward to today, that same amount of Bitcoin is already worth nearly half a billion dollars, and we are not even computing the figures based on the crypto’s all-time high about three years ago.
