Author: Marco Manoppo

Translation: Azuma, Odaily Planet Daily

Editor’s Note: Marco Manoppo, an investor at Primitive Ventures, has been quite prolific recently. After his article on how he missed Virtuals went viral last week, Manoppo has published a new piece today.

In this article, Manoppo outlines the trend of Bitcoin gradually aligning with traditional finance, especially after MicroStrategy (stock code: MSTR) officially joined the Nasdaq 100 index, and the potential impact of passive investment funds on Bitcoin buying. Based on this context, Manoppo states that despite some recent pullbacks in the cryptocurrency market, which is currently in a price discovery range, he is more bullish on Bitcoin than ever before.

Below is the full text by Manoppo, translated by Odaily Planet Daily.

After eight consecutive weeks of gains, the cryptocurrency market has finally seen some pullbacks. Although we are currently in a price discovery range, my bullish sentiment on Bitcoin is stronger than ever. The reason is simple: Bitcoin, as an asset class, is now entering the TradFi (3,3) system.

Growth of Passive Funds

To understand what the TradFi (3,3) system is, we need to assess the growth of passive funds in investment. Simply put, passive funds are investment products aimed at tracking and replicating the performance of a specific market index or segment, rather than trying to outperform it. They follow a set of rules and methodologies to cater to their target market and desired risk allocation.

SPY (SPDR S&P 500 ETF Trust) and VTI (Vanguard Total Stock Market ETF) are well-known passive funds. Most investment enthusiasts may remember that Buffett once bet a hedge fund manager that the S&P 500 index would outperform most active fund managers — Buffett has proven to be correct. Since 2009, passive funds have performed strongly, becoming the preferred investment method for most people.

To delve into all the intricate factors driving the growth of passive funds would require a lengthy article, but we can summarize it into a few simple factors:

Better Cost Efficiency

Compared to actively managed funds, passive funds (such as index funds and ETFs) typically have much lower expense ratios. This is because they do not require fund managers to engage in extensive "active work." Once the rules and methodologies are established, algorithms take over, with only some manual intervention during quarterly rebalancing. Lower costs usually mean better net investment returns, making passive funds more attractive to cost-conscious investors.

Lower Access Barriers and Broader Distribution

In short, passive funds are easier to access. Unlike active funds, investors do not need to painstakingly sift through fund managers, as there is already a well-established industry around distributing financial products to your grandparents. For regulatory reasons, passive funds also tend to integrate more easily into the financial supply chain. Most active funds often face restrictions on distribution materials, while passive funds have already been fully integrated into 401k plans, pension systems, and more.

More Stable Performance

The wisdom of the crowd often leads to better outcomes. Over the past 15 years, most active fund managers have failed to outperform their benchmarks. While investing in passive funds may never yield 10x returns like early investments in Tesla or Shopify, conversely, most people are also unwilling to bet 50% of their net worth on a single stock. High risk and high reward are not always that appealing.

Here are some more interesting statistics:

• In the U.S., passive fund assets have quadrupled over the past decade, growing from $3.2 trillion at the end of 2013 to $15 trillion by the end of 2023.
• As of December 2023, passive funds in the U.S. officially surpassed active funds in total assets under management (AUM) for the first time in history.
• As of October 2024, U.S. stock index funds hold $13.13 trillion in global assets, with $10.98 trillion in U.S. assets; while actively managed stock funds hold $9.78 trillion in global assets, with $7.26 trillion in U.S. assets.
• Index funds currently account for 57% of U.S. stock fund assets, up from 36% in 2016.
• In the first ten months of 2024, U.S. stock index funds saw inflows of $415.4 billion, while active management funds experienced outflows of $341.5 billion.

This is why the entire traditional finance sector, or cryptocurrency fund managers experienced in traditional finance, are so enthusiastic about the narrative of Bitcoin ETFs. Because they know this is the starting point for opening a larger floodgate that will truly bring Bitcoin into the retirement portfolios of ordinary people.

Cryptocurrency Investment Products

But what is the relationship between Bitcoin ETFs and passive funds?

Although the three major index providers (S&P, FTSE, MSCI) have been tirelessly developing cryptocurrency indices, the adoption has been relatively slow, and currently only single-asset cryptocurrency investment products are offered. This is, of course, because these products are easier to launch, and every institution is racing to be the first to launch a Bitcoin ETF. Today, we are seeing major institutions working hard to advance ETH staking ETFs and more altcoin-based investment products.

However, the real killer product is an investment product that combines Bitcoin. Imagine a portfolio consisting of 95% S&P 500 index (S&P 500) and 5% Bitcoin, or a portfolio made up of 50% gold and 50% Bitcoin. Fund managers would be eager to market such products — they are also easier to integrate into the financial supply chain, increasing their distribution channels.

However, the launch and promotion of these products will still take time. Given that they will be introduced as new products, they are not expected to automatically benefit from the existing monthly purchasing power of popular passive products.

MSTR Makes TradFi (3,3) Possible

Now it’s MicroStrategy’s (MSTR) turn to take the stage.

With MSTR being included in the Nasdaq 100 index, passive funds like QQQ (Invesco QQQ Trust, an ETF tracking the Nasdaq 100 index) will be forced to automatically purchase MSTR, which in turn will allow MSTR to use these funds to buy more Bitcoin. In the future, there may be new "Bitcoin-equity-gold" hybrid passive investment products to replace MSTR's role, but for the foreseeable 3-5 years, MSTR, as a "Bitcoin treasury company," will find it easier to play this role because they are a mature publicly traded company, qualifying them to be included in top passive fund indices faster than newly launched passive investment products.

Therefore, as long as MSTR continues to use these funds to buy more Bitcoin, the buying pressure for Bitcoin will continue to grow.

If this sounds too good to be true… it’s because there are still some minor issues to resolve for MSTR to effectively play this role. For example, due to the requirement that companies have positive earnings in the most recent quarter and cumulative earnings over the past four quarters to be included in the S&P 500 index, the current likelihood of MSTR being included in the S&P 500 is low. However, new accounting rules set to take effect in January 2025 will allow MSTR to report the value changes of its BTC holdings as net income, potentially qualifying MSTR for inclusion in the S&P 500.

This is essentially the TradFi (3,3) system.

5-Minute Quick Calculation and Assumptions

I took 5 minutes to do a simple calculation, and if there are any errors in the calculations or suggestions regarding the assumptions, please feel free to point them out.

Note: Calculated based on MSTR's 0.42% share in the Nasdaq 100 index, with QQQ seeing a net inflow of $9.11 billion in 2024, corresponding to a net inflow of $38.26 million per month for MSTR, totaling $459 million annually.

In short — the entire passive investment ecosystem of traditional finance will unconsciously purchase more Bitcoin due to MicroStrategy (MSTR) being included in various indices, just as they are unaware of holding NVIDIA (NVIDIA) stock, creating a (3,3) effect for Bitcoin's price.

免责声明：本文章仅代表作者个人观点，不代表本平台的立场和观点。本文章仅供信息分享，不构成对任何人的任何投资建议。用户与作者之间的任何争议，与本平台无关。如网页中刊载的文章或图片涉及侵权，请提供相关的权利证明和身份证明发送邮件到support@aicoin.com，本平台相关工作人员将会进行核查。