Even Vanguard Is Opening the Door to Bitcoin. Should You Buy the Dip? — Barrons.com
By Ian SalisburyBitcoin is finally gaining widespread acceptance among mainstream investors. Paradoxically, that popularity undermines one of the biggest reasons for owning the crypto in the first place.After hitting an all-time high of just over $126,000 in early October, the popular cryptocurrency has shed more than 25% of its value since. On Wednesday, it was trading around $92,700.Despite the selloff, Bitcoin has garnered some high-profile endorsements. Last month, Bank of America's Merrill Lynch said it would allow financial advisors to recommend that clients invest 1% to 4% of their portfolios in digital assets starting in January. On Tuesday, Vanguard began allowing clients to trade crypto ETFs and mutual funds on its platforms.Bitcoin's biggest step toward the mainstream took place in January 2024, when the Securities and Exchange Commission permitted spot Bitcoin ETFs. The funds, led by iShares Bitcoin Trust ETF, were an instant hit, collecting more than $100 billion from investors and helping drive a big rally in Bitcoin prices. Bitcoin has more than doubled since the funds appeared nearly two years ago.The Trump administration has been a big booster for the crypto industry, too.Ironically, mainstream acceptance may be diminishing the investment case for Bitcoin — at least among the mainstream individual and institutional investors who buy it through an ETF in a Vanguard or Bank of America investment account.While Bitcoin has always had its true believers who will HODL — short for "hold on for dear life" — the mainstream investing case has long rested on a more subtle argument: Crypto is a diversifier, an asset whose prices aren't correlated to the ups and downs of traditional stocks and bonds. The idea is that owning small amounts of crypto — like the 1% to 4% that Merrill suggests — can help smooth a portfolio's returns, much like investors have long owned small amounts of commodities like gold.There's a problem with this theory. Unlike gold, Bitcoin is still a brand-new asset. Its returns are less than two decades old, and the dynamics are liable to evolve, especially as new kinds of investors buy in.Earlier this year, CME Group economist Mark Shore published a note pointing out that, between January 2014 and April 2025, Bitcoin boasted a relatively low correlation to stocks of 0.2. But it's worth looking more closely at the data. Bitcoin recently underwent a significant shift, essentially being uncorrelated to stocks before 2020 and then displaying a positive correlation of about 0.5 since then."The positive correlation is not limited to a single index. Both the S&P 500 and Nasdaq 100 show very similar patterns, indicating that the trend is widespread across the equities market," wrote Shore. "This suggests that Bitcoin's performance is now more closely tied to the broader economic and market conditions."There's one obvious explanation for this: all the mainstream institutional and retail investors who have piled into Bitcoin over the past few years, especially since the advent of Bitcoin ETFs. These investors are notorious for chasing hot returns.A look at the investment flows in and out of Bitcoin ETFs suggests that is exactly what they have been doing. During the first 10 months of the year, when Bitcoin was on a steady upward trajectory, investors poured more than $24 billion into Bitcoin ETFs, according to FactSet. Since then, the trend has sharply reversed, with investors yanking $3 billion from the funds in the past month alone.All this buying and selling has an effect on Bitcoin's price. In other words, Bitcoin's popularity appears to be turning it into a "risk-on asset" that reflects mainstream investors' bullishness, just like the stock market it is supposed to be a refuge from.The bottom line: The more popular Bitcoin gets, the less reason there is for you to own it.Write to Ian Salisbury at [email protected] content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.