Will ETFs And Index Funds Be The Cause of Next Market Crash?
This is something I have been worried about since the time traditional financial sector started integrating with cryptosphere. They are going to send the prices higher at first and we can celebrate getting rich. All of this comes at the cost of control and erosion of decentralization. The worst part is that cryptosphere makes itself open to market manipulation from governments and crony capitalists.
The Worst Part is Passive Investing
There are several ways passive investing is done. All of them involve the investor not caring or even knowing about what they are investing into. Ultimately, a small number of traders or simple algorithms end up dictating the movements of the markets. Price discovery cease to be efficient leading the market to be divorced from fundamentals.
I consider all of these developments are building towards asking for a black swan event. The previous bull market crashed because of some centralized elements loosely connected to cryptosphere (FTX etc.). What if a similar event or straight up manipulation happen through the control of traditional financial system.
The hate against ETFs by Wall Street is funny. They should embrace it. It will give them more of an edge (if their argument is true).
All bear markets started after something collapsed or was proven to be a hyped up bubble (ICOs). With the increasing institutional involvement in crypto, it's very likely something they control will cause the next bear market. Maybe ETFs, maybe something else. But investors in ETFs will at some point start selling hard to take profits. At which point, Microstrategy won't be able to buy everything they sell. Sure, they may start selling more after an event that starts a massive FUD. But there's still time until then...
In other words, the volatility is going to be supercharged. We have to be prepared for something like this.
Most likely, yes.