Is Passive Investing Breaking the Market? | Global Macro | Ep.101

Watch on YouTube ↗  |  May 22, 2026 at 15:39  |  1:13:51  |  Top Traders Unplugged
Speakers
Hari Krishnan — Head of Content, CoinDesk
Cem Karsan — Founder, Karsan Consulting

Summary

Hari Krishnan discusses his paper with Mike Green and Stefan Sturm on how rising passive investing can break market stability by weakening the link between fundamentals and prices. He warns that at high passive share, markets become volatile and fragile even without net flows. Cem Karsan adds that the financial system's size means markets drive the economy, and policymakers are forced to manage outcomes, likely leading to inflationary monetization. The conversation covers concentration, dispersion, volatility targeting, and practical investment takeaways.

  • Passive investing share has risen predictably and may now be 50-55% of US equity market.
  • High passive share weakens mean reversion, making markets unstable even with no net flows.
  • The model shows that at around 83% passive share, volatility can increase uncontrollably.
  • Passive flows amplify mega-cap concentration, creating reflexive momentum and feedback loops.
  • Markets are now so large ($500T long assets) that they drive the economy rather than reflect it.
  • Government intervention is likely to prevent deep drops, but it may lead to inflationary monetization.
  • Investors are advised to stay long equities but hedge with crash protection and upside tail risk.
  • Inflation-sensitive assets like commodities are attractive in the long-term scenario.
Trade Ideas
Hari Krishnan Head of Content, CoinDesk 69:40
Long equities attractive due to passive flows.
As passive investing continues to drive equity markets upward through flow-driven momentum, being long equities is attractive because the reflexive performance-flow loop can persist for a long time, even if fundamentals are disconnected. The risk of a sudden break is real, but the trend is powerful.
SPY HIGH
Hari Krishnan Head of Content, CoinDesk 69:56
Hedge with downside crash protection.
Given the fragility of a passive-dominated market and the risk of sudden, violent corrections from forced deleveraging, downside hedges (crash protection) are very attractive. They provide asymmetric payoff when breaks occur and are cheap in a low-volatility, flow-driven environment.
S&P 500 put options HIGH
Hari Krishnan Head of Content, CoinDesk 70:08
Buy underpriced S&P call skew.
The call skew on the S&P index is likely underpriced because the index becomes more concentrated and less elastic, making upside convexity cheap relative to the risk of reflexive upside moves. Buying upside tail risk (e.g., call options) allows participation without adding to long exposure.
S&P 500 call options HIGH
Hari Krishnan Head of Content, CoinDesk 70:39
Go long inflation-sensitive assets.
The most likely long-term policy response to an over-levered, fragile system is inflationary monetization of debt, which will benefit assets that are sensitive to inflation. Investors should find ways to get long inflation-sensitive assets such as commodities, gold, or other real assets.
DBC HIGH
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This Top Traders Unplugged video, published May 22, 2026, features Hari Krishnan discussing SPY, S&P 500 put options, S&P 500 call options, DBC. 4 trade ideas extracted by AI with direction and confidence scoring.

Speakers: Hari Krishnan  · Tickers: SPY, S&P 500 put options, S&P 500 call options, DBC