Think about what markets are supposed to do—funnel capital to where it actually generates returns. But passive funds? They don't care about that game. They just buy everything mechanically, regardless of whether valuations make sense.

This indiscriminate buying spree can seriously warp prices away from the underlying fundamentals. You end up with assets pumped up not because they're worth more, but simply because passive inflows keep chasing them. In crypto markets, we've seen this play out countless times—tokens rallying on momentum while actual utility metrics stay flat.

The problem is real: when trillions flow into index-tracking strategies, they stop performing their proper function as a price discovery mechanism. Markets become less efficient, not more.