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Ric Edelman, founder of Edelman Financial Engines

Portfolio > ETFs

'Vanguard Is Not Your Mother': Ric Edelman Excoriates Bitcoin ETF Holdout

By Dinah Wisenberg Brin

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What You Need to Know

  • Vanguard shouldn't tell customers they can't invest in bitcoin ETFs, Edelman said.
  • The fund giant will eventually offer the ETFs, the crypto advocate predicted.
  • Grayscale's higher fee is rude to those who own it, he said.

Digital Assets Council of Financial Professionals founder Ric Edelman, while celebrating the recent U.S. regulatory green light for 11 spot bitcoin ETFs, blasted fund giant Vanguard Group and scolded crypto asset manager Grayscale over their approaches to the new securities.

In his podcast, The Truth About Your Future, Edelman scorched Vanguard this week for its “obnoxious” and “patriarchal” decision to bar clients from purchasing crypto assets, including the new bitcoin ETFs, on its platform, and urged a boycott.

And while crediting Grayscale for its prominent role in making spot bitcoin ETFs a reality, he knocked the firm for the 1.5% annual fee on the Grayscale Bitcoin Trust ETF (GBTC), which the firm converted from a closed-end fund structure to a spot bitcoin ETF when the Securities and Exchange Commission approved the new funds last week.

The crypto advocate predicted Vanguard will eventually offer the bitcoin ETFs, which the asset manager has said don’t align with its views on well-balanced, long-term portfolios.

‘Vanguard Is Not Your Mother’

“That is beyond ridiculous. Vanguard offers nearly 400 mutual funds and ETFs. It offers thousands more that are sponsored by other fund companies. On Vanguard’s platform, you can buy dozens of mutual funds and ETFs that Vanguard itself says are of the highest risk of all investments — commodities funds, emerging markets funds, gold funds,” he said, according to the Tuesday podcast’s transcript.

“Apparently, Vanguard doesn’t know that the SEC has ruled that bitcoin is a commodity. So if Vanguard offers other commodities ETFs, why not this commodity ETF? And apparently Vanguard doesn’t really understand what a well-balanced long-term portfolio really is. How can you build a well-balanced portfolio if you’re excluding some assets that help you balance out the risks of the portfolio?” Edelman asked.

“Vanguard obviously needs a course in modern portfolio theory, the Nobel Prize-winning investment management methodology that virtually every financial advisor adheres to. When you add a risky asset to a diversified portfolio, you actually lower the risk of the overall portfolio while increasing returns. Doesn’t Vanguard know this?” he continued.

“How can Vanguard say that bitcoin isn’t a solid long-term investment? Would Vanguard have preferred that you buy Kodak, which was a 150-year-old company but then went bankrupt, or Blockbuster Video that got wiped out by Netflix? How can Vanguard claim that it knows which investments are the right ones for the long term?” Edelman asked.

He seemed to accuse the company of helicopter parenting.

“Who the hell is Vanguard to make that decision for you in the first place anyway? Vanguard is not your mother. They don’t get to tell you what to do. Their job is to make available all the investments that are permitted by the SEC. … It’s for Vanguard to put them on their platform and then let the investor and the investment advisor decide, just like they decide about all of the other thousands of funds that are on Vanguard’s platform.”

Investors aren’t hiring Vanguard to tell them what they can and can’t do, Edelman continued.

“This is an obnoxious, arrogant and highly inappropriate patriarchal decision by Vanguard, and it’s going to cost them a lot of customers and a lot of business. Already, social media is filled with investors who are complaining about this, and they’re busy transferring their accounts from Vanguard to Schwab, where you can buy all 11 of these spot bitcoin ETFs on Schwab.com,” he said.

“Boycott Vanguard, transfer your assets tax-free and fee-free to someone else. That will give you the access to the bitcoin ETFs that you want. Schwab is a good choice. It’s not the only choice, it’s a good one. And lots of financial advisors are also ready to help you, but not those who custody at Vanguard,” Edelman said.

Wells Fargo, Merrill Lynch, UBS and Citi are letting their investors trade the new bitcoin ETFs, he added, calling Vanguard “crazy” and out of step with the financial services industry.

He predicted Vanguard will change course.

“Five years from now, they will have crypto ETFs and they will allow their customers to buy all the ETF products. But they’re going to be very late to the party. And their customers who sit with them and wait are going to miss out on the massive opportunities they currently have to reduce overall portfolio risks and enhance overall portfolio returns,” Edelman said. “Shame on Vanguard.”

No Reason to Pay Grayscale’s Bitcoin ETF Fee

As for Grayscale, Edelman praised its work to win regulatory approval for spot bitcoin ETFs but criticzed its comparatively high fee and the effect on longtime holders.

Grayscale’s popular closed-end trust, once one of the few vehicles for bitcoin exposure other than directly buying the digital coins, became the largest spot bitcoin ETF, with $26 billon in assets under management, upon conversion. It lowered its fee from 2% to 1.5%, a rate significantly higher than competitors.

“We are all deeply grateful to Grayscale for its leadership. It was their lawsuit against the SEC that is directly responsible for the SEC finally granting approval of these bitcoin ETFs, and the SEC didn’t just say yes to GBTC. … The SEC said yes to 11 of these ETFs,” Edelman said.

“This is wonderful because it creates market competition that helps to lower the prices for everybody. But it also creates a bit of work for you as an advisor or as an investor, because now you’ve got to evaluate all 11 of them, and you’ve got to decide which ones you want to use. So while I say thanks to Grayscale for making all this happen … I have to say to Grayscale your GBTC, your bitcoin ETF sucks.”

For years, Grayscale was the only game in town, Edelman said, noting he’s owned it a long time and has “made a ton of money on it.” He didn’t mind the fee because he expected big profits and there wasn’t much choice.

“But now GBTC is an ETF among 11 ETFs, and there’s simply no reason to pay 1.5% per year. Not one,” he said.

Franklin Templeton, Bitwise, Fidelity, Invesco and others are charging zero for six months to a year, and even after that time period, the ETFs are “free,” he said. “Their fee will be a fraction of GBTC’s fee. Franklin Templeton is just 0.19%, Bitwise is 0.2%. Blackrock and Fidelity are 0.25%,” he said.

Grayscale CEO Michael Sonnenshein “knows that the overwhelming majority of people who own GBTC are going to keep it,” Edelman said. “They’re either too dumb to know that they’re paying an outrageous fee, or they’re too lazy to do anything about it, or they don’t want to sell it and incur the taxes on their profits. He’s right. I bet that he’ll keep almost all the AUM in that fund. He might not attract much more in new assets.”

While it’s a smart move for Grayscale, “it’s also pretty rude for the millions of people who own your fund and who aren’t proactive enough to fix the issue for themselves by flipping out of GBTC and into one of the other new spot bitcoin ETFs,” he said.

“But I’ve got to tell you, I’m not one of those people suffering from inertia. I have sold all my GBTC, and I moved that money to Franklin Templeton, Bitwise, Fidelity, Blackrock and Invesco. I like these providers and I believe in diversification. I’ve maintained my bitcoin exposure, and I cut my expenses from 1.5% per year to virtually zero.

“And yes, I’ll be paying taxes on my gains from selling my GBTC. But the way I figure it, unless I die owning it, I’m going to pay that tax sooner or later. And why incur a 1.5% fee for years or decades?” Edelman asked.

With possible capital gains tax increases in the future, Edelman noted he gets to pay capital gains at the current low rate by selling now.

Crypto and Advisors

Edelman said most financial advisors didn’t expect the SEC to approve spot bitcoin ETFs this year, although a vast majority are likely diving in now. Advisors need to engage with crypto now to maintain credibility and client assets, he warned.

Edelman cited a recent survey indicating that only four in 10 advisors had expected that approval to happen this year, while 88% of advisors who wanted to invest in crypto said they were waiting for a spot bitcoin ETF’s approval.

The survey from Bitwise Asset Management, a U.S. crypto index fund manager, and VettaFi, an ETF data research firm, was released just a week before the SEC approved the spot bitcoin ETFs.

“I’m not surprised that most advisors got it wrong. Most advisors don’t really follow what’s going on in crypto, and they really don’t know much about it. So if they didn’t think the ETFs were coming, that means they certainly weren’t getting ready for them,” Edelman said, according to the podcast transcript.

Among advisors who did include cryptocurrency in client portfolios, nearly half allocated more than 3%, according to the Bitwise-VettaFi survey.

“That’s noteworthy. I’ve been advocating a 1% allocation. So clearly financial advisors, on average, are a lot more comfortable with bitcoin than even I had expected,” Edelman said, noting that 60% of advisors acknowledged their clients were investing in crypto on their own. 

“Two years ago, virtually no advisor fessed up to that. They were all in denial. But now nine out of ten admit they’re getting questions from clients about crypto,” he said.

Another recent crypto study found that 40% of American adults now own crypto, an increase from 30% a year earlier, and most Americans who already owned crypto planned to buy more this year, according to Edelman.

“This is why you, as an advisor, must get engaged and you must get engaged right now. Not only do your clients want this, many of them already own it, and if they’re not getting it from you, that means you’re losing assets. You’re also losing credibility because of your refusal to help your clients.”

Edelman also appeared on a webcast last week with Matt Hougan, chief investment officer of  Bitwise, which now offers the Bitwise Bitcoin ETF Trust (BITB), to discuss what the spot bitcoin ETF development means for advisors  and clients.

“It’s really hard to overstate the significance of this. We really have crossed a major threshold in the development, evolution of blockchain and digital assets,” Edelman said.

“For investors looking to gain access to bitcoin, it’s important because it’s now the cheapest, easiest and most secure way for them to do it,” Hougan said.

“If you’re an advisor, it’s been really hard to gain access to crypto,” Hougan said. Advisors could find crypto before “but they had to jump through hoops, they had to take extra steps, they had to take on certain challenges at a compliance level. An ETF over time solves all of that.”

Advisors can bring clients’ assets from Coinbase, a crypto exchange where more than 50 million Americans store their crypto assets, Hougan added. “You can bring them into your practice and grow your practice that way. So it’s a win for advisors.”

Edelman, citing estimates that bitcoin’s price could grow several-fold in the next decade, indicated advisors and investors should hurry.

“This is a timely trade, and that means advisors need to get off their butts and start paying attention to the technological underpinnings of this, get the knowledge you need to understand how this works,” he said.

“Figure out which of these ETF products you want to use and begin allocating to clients because literally the clock is ticking. The longer you wait, the slower you are, the fewer gains you’re going to end up with,” he said.

Edelman predicts the bitcoin ETFs will attract $150 billion in assets and that bitcoin’s price will reach $150,000 in the next two years.

Image: Adobe Stock

Dinah Wisenberg Brin

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