Matt Levine Addresses My (and someone else's) Question

I was one of the two readers of Money Stuff who asked him this question, and we got it answered today:

No-crypto index

We talked last week about how (1) an increasing number of US public companies are pivoting to crypto treasury strategies, (2) those companies are starting to show up in stock indexes and, thus, in the portfolios of index funds, and (3) therefore many boring conventional diversified stock retirement funds actually have some crypto. I thought this was fine, writing:

The simplest and laziest way to get sort-of-index-ish exposure to crypto is to own the total US stock market, because the stock market now includes an ever-growing supply of crypto treasury companies. You might not want crypto in your stock index fund — Vanguard doesn’t want crypto in its stock index funds — but the whole point of an index fund is that you don’t want to invest in what you want! (Or in what a fund manager wants.) You don’t trust yourself (or your fund manager) to want the right things. You want to invest in what the market wants, and what the market wants is crypto.

That view — “invest in the market portfolio” — is pretty standard, but also a bit extreme. The more normal version of it is something like “your default exposure to financial assets should be roughly proportional to their market weights, but if you have some reason to deviate from the market weights, go right ahead.” My assumption is that most normal people don’t have any particularly good reason to pick one investment over another — if you are not a professional investment manager, you probably have better things to do with your time than deeply understanding financial markets — but some people do, or at least, have good enough reasons. 

For instance, a classic reason is what is sometimes called “ESG,” environmental, social and governance investing. If you think “I do not want to make particular stock-picking decisions, but I also do not want to own coal companies because global warming is bad,” there are investment vehicles for you. There are even indexes; there are indexes that are approximately “the S&P 500, but ESG,” for people who want to invest passively in the broad market portfolio but who also have ESG commitments.

Crypto is quite popular these days, but it’s also pretty obvious that lots of people do want to exclude it from their portfolios. (My Bloomberg Opinion colleague Allison Schrager has a column today titled “Bitcoin in Your 401(k)? That’s Not a Risk I Would Take.”) And so there’s a natural question that at least two readers have emailed me to ask: “Is there a broad stock market index that excludes crypto?” (That is: An index that excludes crypto treasury companies that are meant to be essentially pots of crypto wrapped in public-company stock, and also maybe crypto miners or whatever.)

As far as I can tell the answer is “no, but there should be.” Some people want to own the entire stock market, and the stock market these days includes a certain amount of Bitcoin in a fake mustache. Other people want to own the entire stock market except the bit of it that is crypto. Those people would buy that, so someone should sell it to them.

This is almost (but not quite) as cool as the time my law school girlfriend, years later, was a caller on Car Talk and got advice on what car she should get to replace her VW Dasher.