After eight consecutive weeks of gains, the cryptocurrency market has finally seen a pullback. Although we are currently in a price discovery phase, my bullish sentiment on Bitcoin is stronger than ever. The reason is simple: Bitcoin, as an asset class, is gradually integrating into the traditional financial system (TradFi) and is expected to achieve leapfrog development.
To understand how Bitcoin enters the TradFi (3,3) system, we first need to understand the rise of passive funds. Passive funds, as the name suggests, do not rely on active fund managers for frequent buying and selling, but automatically track and replicate their performance based on market indices or specific asset classes. The investment philosophy is: there is no need to outperform the market through individual stock selection, just "go with the flow".
For example, SPY (SPDR S&P 500 ETF Trust) and VTI (Vanguard Total Stock Market ETF) are the most famous passive funds in the world and have become the preferred tools for most investors. Many may remember that Buffett once bet with hedge fund managers, believing that the S&P 500 index would outperform most actively managed funds, and ultimately Buffett won. Since 2009, passive funds have been performing strongly and have become mainstream for public investment.
A detailed discussion on the factors driving the development of passive funds could be written as a monograph, but fundamentally, there are several simple yet important reasons:
Significant cost-effectiveness: Compared to active funds, passive funds have much lower fees because they do not require human intervention. Investors only need to follow the rules to track the market, avoiding the complicated stock selection process. This means lower management fees and higher net returns, especially suitable for cost-sensitive investors.
Low barriers and wide accessibility: The investment threshold for passive funds is low and they have deeply integrated into various financial channels. For example, they can usually be easily included in retirement accounts, pension plans, etc., where investors do not need to screen fund managers, making the investment path convenient and steady.
Stable investment returns: Passive funds can fully leverage the overall growth trend of the market by tracking major indices, reducing the high risks of individual stocks. Although it cannot enjoy the 10x returns like Tesla or Shopify, it also avoids huge downward risks, making it suitable for long-term stable investment.
In the past decade, the asset scale of passive funds has quadrupled, soaring from $3.2 trillion at the end of 2013 to $15 trillion at the end of 2023, surpassing the managed asset scale of active funds. This has also prompted fund managers in the traditional financial sector to flock to the concept of Bitcoin ETFs, as they clearly realize that this is key for Bitcoin to enter the retirement accounts of ordinary investors.
Bitcoin and passive funds - a new investment opportunity
So, what is the connection between Bitcoin ETFs and passive funds? Although the three major global index providers - S&P, FTSE, and Morgan Stanley - have been developing cryptocurrency indices, the pace of launch is relatively slow, and most are limited to single-asset cryptocurrency investment products. As cryptocurrencies gradually gain acceptance, more and more institutions are starting to launch Bitcoin ETFs and promote innovative investment products such as ETH staking ETFs.
However, the most promising investment products are not just Bitcoin ETFs, but hybrid products containing Bitcoin. Imagine a portfolio made up of 95% S&P 500 index and 5% Bitcoin, or a configuration of 50% gold and 50% Bitcoin. These products are not only more appealing to fund managers, but also easier to integrate into the traditional financial supply chain, expanding their distribution channels. Nevertheless, the launch of these products will still take time and will not immediately enjoy the monthly purchasing power accumulated by existing passive funds.
MSTR - A key link in traditional finance
At this time, MicroStrategy (MSTR) has become a key force driving Bitcoin into the passive investment ecosystem. As MSTR is included in the Nasdaq 100 index, passive funds like QQQ (which tracks the Nasdaq 100 index) will automatically purchase MSTR shares, and MSTR can then use these funds to further increase its Bitcoin holdings. This interaction will provide continuous support for Bitcoin's price.
Interestingly, MSTR will become a catalyst for the perfect combination of Bitcoin and traditional finance. Although MSTR currently does not meet the requirements to be included in the S&P 500 index, with the introduction of new accounting rules in 2025, MSTR will have the opportunity to leverage the value fluctuations of its Bitcoin assets to meet the inclusion standards, thereby gaining more capital inflow.
The "(3,3)" effect of Bitcoin
In fact, this wave of Bitcoin purchases triggered by MSTR is a typical "(3,3)" effect: as more passive investment funds flow into Bitcoin, market buying will gradually push up Bitcoin's price, and this "buy-hold-appreciate" model will have far-reaching implications in the coming years.
Assuming MSTR's proportion in the Nasdaq 100 is 0.42%, with a net inflow of $9.11 billion for QQQ in 2024, this means MSTR will receive a net inflow of $38.26 million monthly, with an annual inflow of $459 million. In other words, the passive investment ecosystem of traditional finance, through the inclusion of MSTR, will unconsciously purchase more Bitcoin, providing continuous upward momentum for its price.
If this information feels a bit overly idealistic, that is not surprising. After all, allowing MSTR to play its role requires solving some minor issues, but from the overall trend, as Bitcoin is gradually absorbed into the traditional financial system, this process will become unstoppable.
Seeing this, if you are full of expectations for the future of Bitcoin in the traditional financial system, then don't hesitate any longer! Follow me, and let's explore more about the potential and opportunities of digital currencies together, leading you to the forefront of the market and making you a true investment expert. Follow the master, and you won't get lost on the road to wealth!
