Vanguard Criticizes Bitcoin Yet Holds 8% of Strategy Stock

Vanguard, a prominent asset management firm, has publicly expressed its disdain for Bitcoin, arguing that it lacks a role in long-term portfolios due to its speculative nature and lack of inherent economic value. The company's head of ETF capital markets, Janel Jackson, emphasized that Bitcoin is an immature asset class with little history and no cash flow, which can create havoc within a portfolio. This stance has attracted criticism from crypto enthusiasts, some of whom have threatened to boycott the brand.

Despite Vanguard's public disapproval of Bitcoin, the firm finds itself in an awkward position. Vanguard is a significant player in the crypto world, owning more Strategy stock than anyone else. Strategy, a company with the stated goal of amassing as much Bitcoin as possible, has seen its share price performance soar over the past five years. Since 2020, when Strategy started adding Bitcoin to its treasury, its stock has jumped by 3,665%. This extraordinary performance has made it difficult for Vanguard to ignore, as its index funds track hundreds of different stocks, including Strategy.

Vanguard's new chief executive, Salim Ramji, has doubled down on the company's position against Bitcoin, arguing that it does not align with Vanguard's long-standing investment philosophy. However, the firm's ownership of Strategy stock means that a substantial number of investors on its platform will have exposure to a company heavily invested in Bitcoin. This situation is out of Vanguard's control, as its index funds are designed to track the performance of various stocks, including those it may not personally approve of.

Strategy's inclusion in the Nasdaq 100 and the S&P 500 has further complicated Vanguard's position. These inclusions prompt a rush of purchases as index fund providers race to rebalance their portfolios. Estimates suggest that Vanguard now owns about 20 million Strategy shares, representing 8% of common stock. This holding reflects the growing institutional support for Bitcoin, although Strategy's executive chairman, Michael Saylor, has argued that Vanguard's holding is a result of its index fund strategy rather than a deliberate investment in Bitcoin.

This situation highlights the increasing entanglement between the worlds of crypto and traditional finance. While resurgent crypto stocks are good news for everyday investors saving for retirement or a rainy day, they also pose risks. Should Strategy's stock crash during the next bear market or if its Bitcoin holdings become worth less than their cost price, these same investors could face substantial financial losses. This underscores the dual nature of the relationship between crypto and traditional finance, where gains and losses are shared by investors on both sides.