Author: @ManoppoMarco Compiled by: Vernacular Blockchain

After eight consecutive weeks of gains, the crypto market Finally there is some pullback. However, my bullish sentiment towards Bitcoin is stronger than ever, even though we are currently in a price exploration zone. The reason is simple: as an asset class, Bitcoin is gradually entering the (3,3) system of traditional finance (TradFi).

To understand TradFi, you need to first understand the development of passive funds in investment. Simply put, passive funds are investment products designed to track and replicate the performance of a specific market index or segment, rather than trying to beat them. Such funds follow specific rules and methodologies to serve their target markets and risk appetite.

SPY (SPDR S&P 500 ETF Trust) and VTI (Vanguard Total Stock Market ETF) are good examples of well-known passive funds. Your financial expert friends or uncles and elders may have suggested that you buy these funds instead of some kind of "air currency", but you have proved their advice wrong with your actual actions! But I digress.

Most investment fans may remember that Buffett once made a bet with a hedge fund manager that the S&P 500 Index would outperform most active investors. Management funds, facts have indeed proven that Buffett is right. Since 2009, passive funds have rapidly emerged as the investment method of choice for the vast majority of people.

But please don't think of those college classmates who are addicted to WSB options as "the vast majority of people."

Going into all the details driving the growth of passive investing would take an entire article, but we It can be boiled down to a few simple factors:

1) Cost efficiency

Passive funds (such as index funds and ETFs) typically have much lower expense ratios than actively managed funds because they don't require a lot of "active activity" from the fund manager. Once the rules and methods are set, the rest is largely done by algorithms, with only a small amount of human intervention required during quarterly adjustments. lower costCosts generally translate into higher net returns, making passive investing particularly attractive to cost-conscious investors.

2) Accessibility and distribution channels

Simply put, passive funds are easier get. You don't need to work hard to filter which active funds are worth investing in. There is an entire industry dedicated to getting financial products into the hands of your grandparents, and passive funds are even more deeply integrated into these distribution chains due to regulatory implications. For example, most active funds are limited in promotional materials, while passive investment products are truly integrated into 401(k)s, pension systems, and many other channels.

3) Stable performance

"The wisdom of the crowd" can often bring better results result. Over the past 15 years, most actively managed funds have underperformed their benchmarks, underscoring the advantages of passive funds. While you probably won't get a 10x return like you would if you bought Tesla or Shopify early on, most people also don't bet 50% of their net worth on a single stock. High risk isn't always the sexy choice.

4) Still not convinced? Here are some interesting numbers

In the United States, passive fund assets have quadrupled over the past decade, from $3.2 trillion at the end of 2013 to 2023 $15 trillion at the end of the year.

As of December 2023, total assets under management (AUM) of passive funds surpassed active funds for the first time in history.

Data for October 2024 show that U.S. stock index funds held $13.13 trillion in global assets and $10.98 trillion in U.S. assets, while actively managed Equity funds were US$9.78 trillion and US$7.26 trillion respectively.

Index funds now account for 57% of U.S. stock fund assets, up from just 36% in 2016.

U.S. stock index funds saw inflows of $415.4 billion in the first ten months of 2024, while actively managed stock funds saw outflows of $341.5 billion during the same period.

Because of thisAs a result, the entire traditional finance sector, as well as those crypto fund managers with traditional finance backgrounds, are paying close attention (pun intended, literally "investing" in) the progress of Bitcoin ETFs. They know that this will be the starting point of a larger torrent that will truly bring Bitcoin into ordinary people's retirement portfolios.

What is the relationship between Bitcoin ETFs and passive funds? While the three major index providers (S&P, FTSE, MSCI) have been working hard to develop cryptocurrency indices, their adoption has been relatively slow, starting with single-asset crypto products so far. Obviously, this is because these products are easier to launch, which is why everyone is rushing to be the first to launch a Bitcoin ETF. Today, we are already starting to see development efforts towards Ethereum-staking ETFs, as well as more altcoin-based products.

However, the real killer product is the BTC hybrid. Imagine a portfolio that is 95% S&P 500 and 5% BTC, or 50% gold and 50% BTC. These are the types of products that financial advisors will feel more comfortable recommending and will also be integrated into the investment product supply chain, thereby broadening their distribution channels.

Still, launching and promoting these products will take time. Because they are new products, they do not automatically enjoy the benefits of monthly inflows like existing popular passive products.

Next is MSTR: With MSTR being included in the Nasdaq 100 Index, passive funds (such as QQQ) will be forced to automatically buy MSTR, in turn, will use these funds to purchase more Bitcoins. In the future, new BTC-stock-gold hybrid passive products may emerge to replace MSTR's role, but in the foreseeable 3-5 years, since MSTR is a mature US listed company, compared with newly launched passive products, It is more likely to quickly qualify for index inclusion in top passive funds, thereby playing the role of a “Bitcoin vault company.”

Therefore, as long as MSTR continues to use capital to purchase more BTC, the demand to buy Bitcoin will continue to increase.

If this sounds too good to be trueletter, that’s because there are still some minor hurdles that need to be addressed to allow the MSTR to play this role more effectively. For example, MSTR is less likely to be included in the S&P 500 because the S&P 500 requires a company to have positive earnings for its most recent quarter and cumulative earnings over the past four quarters. However, new accounting rules starting in January 2025 will allow MSTR to include changes in the value of its BTC holdings in net income, which could make it eligible for inclusion in the S&P 500 Index.

Essentially, this is the core of traditional finance.

5 minutes of rough calculations and assumptions. I really only spent 5 minutes doing this calculation. If there are any mistakes or suggestions for assumptions, please leave a comment below. !

In short, because MicroStrategy is included in the supply chain of traditional finance, the entire traditional The financial passive investing ecosystem will unintentionally buy more Bitcoin, just like they unknowingly hold Nvidia stock, which has an effect on the price of Bitcoin similar to traditional finance.