The Passive Blackpill and the Corruption of the Legions What is Blackrock, really? It’s an ETF company, selling passive investing products Why do these products exist? At some point the government realized it’s not good for the general public to think about fundamental investing The “buy side” ie fundamental long short investors are supposed to set prices for companies while passive investors benefit from this work Hedge funds basically set prices and then retirees can buy the s&p 500 index and not have to think about what they own But at some point - passive indices got too big. And fundamental investors found themselves getting “run over”. The first set of major crash outs was ppl trying to short Tesla. And then GameStop formalized the phenomenon with the destruction of Melvin Capital (a storied fundamental investor) Robinhood revenue is growing at 45% year on year and 0 day option volumes are going parabolic. These serve no fundamental purpose other than speculation. So on top of the bulk of passive investors there are active traders basically hyper gambling This creates 2 large non fundamental flows. Passive buyers who only index on market cap. And degens who just buy whatever has gone up the most When these are a small % of the overall market it is manageable. But as they grow larger and larger it becomes impossible to fade. Fundamental investors would try and short things and get run over Melvin went bankrupt. At first the move from fundamental investors became to just avoid memes. But bc they’re implicitly indexed to the market cap of indices (long short investors run a positive beta to the s&p 500). As memes grow larger so too does the need to participate An inflection was reached - about a year ago where ppl realized it was more profitable to engage with the meme economy than to fade it. Better to run TSLA higher or go with the NVDA call apes. Front run leveraged etf flows. All of it That’s how Palantir goes to $300b and how MSTR can have a persistent premium. Its how Tesla can be the worlds largest automaker by market cap despite having an unclear business trajectory. We are now in a fundamental fever dream where the only price discovery is ppl unknowingly buying index products or wildly aping into call options The S&P 500 committee has “qualitative override” to avoid listing things like MSTR. But it’s hard to apply this qualitative agency as it goes against everything that underpins passive investing The academic fallacy that underpins all of this is called “the market efficiency hypothesis”. The idea that market caps correspond with actual value creation. Soros famously remarked “I have heard extensively of the market efficiency hypothesis but I have never encountered it in real life in my 30 years of investing” The rise of on chain securities and DATs (MSTR clones) along with institutional adoption of crypto is important. The Bitcoin etf is Blackrock’s most successful product. It makes them more money than the S&P 500 etf. They’re crypto aligned now Crypto investors are quite familiar with the concept of market caps being heavily manipulated to extract on TGE, or alternatively constructing FDV/ market cap gaps to dilute holders But now that institutions are in on the crypto game (Goldman initiating on Galaxy etc). The playbook becomes simple. Run the market caps of speculative securities higher. Get them added to indices. Until the entire S&P 500 is filled with hot trash Then when it collapses the smart ppl will say “not your keys not your coins” and Saylor will live his older years out in El Salvador. A billionaire. And nobody will even realize it bc they assumed the market was efficient and they trusted the buy side to keep it that way MSTR getting in the S&P 500 is therefore an important milestone, and something you need to see for a sustained run higher in speculative crypto assets At the end of the day, there’s no stopping it. There is too much money not to do it.