Why Passive Investing Could Trigger The Next Major Crash | Mike Green

In this Short video, Mike Green and Adam Taggart discuss the explosive growth of passive investing and what happens when passive flows become too dominant relative to active, discretionary capital.

Passive flows — primarily through ETFs, index funds, and systematic rebalancing — have become one of the most powerful forces driving markets higher.

The concern is not just that passive investing is large, but that it creates a self-reinforcing feedback loop where capital automatically buys more of what is already going up.

As long as inflows continue, markets can remain persistently elevated, volatility stays suppressed, and “buy the dip” behavior keeps working.

However, Mike Green argues that there is a dangerous tipping point embedded in this structure.

Once passive investing exceeds roughly 65% of market share, there may no longer be enough discretionary capital left to stabilize markets during major periods of volatility.

Mike Green estimates passive share is currently around 53–54% and rising by roughly 4% per year, implying the market could approach this danger zone in about 2.5 years.

To explain the risk, Mike Green compares today’s market structure to the 2018 collapse of the inverse-volatility ETF XIV. In that case, roughly 70% of trading volume in the inverse VIX ETF ecosystem became structurally tied to one-sided positioning. This created a setup in which volatility spikes could trigger mechanical unwinds that fed on themselves – an event that would lead to an eventual collapse. That event ultimately occurred just six months later.

The same type of reflexive instability now exists on a vastly larger scale — not in a $2.5 billion ETF product, but potentially across a $73 trillion market ecosystem.

The core fear is that once passive dominance becomes too extreme, volatility events could become self-reinforcing because there would not be enough active discretionary buyers to step in and absorb selling pressure. In other words, markets could lose one of their natural stabilizers.

So, when the passive share approaches the critical threshold, the market environment could change dramatically from the steady upward “rocket ride” investors have become accustomed to.

That would likely mean:
– Buying the dip may stop working consistently
– Volatility could rise structurally
– Market declines could become sharper and more disorderly
– Passive inflows may amplify downside moves instead of cushioning them
– Traditional long-only investing could become significantly more difficult for average investors

Get access to my notes with the key takeaways from this interview with Mike Green by visiting my Substack at https://adamtaggart.substack.com
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Видео Why Passive Investing Could Trigger The Next Major Crash | Mike Green канала Adam Taggart | Thoughtful Money®