Background: What is MicroStrategy?

In 2020, Michael Saylor turned MicroStrategy (MSTR) from a sleepy software company into the world’s first publicly traded Bitcoin treasury vehicle. By raising billions through debt and equity, then converting that capital into Bitcoin, MicroStrategy pioneered a corporate structure that gave investors a stock-market proxy for the world’s most volatile asset.

This strategy has inspired both admiration and criticism. While admirers call it visionary financial engineering, skeptics call it a Ponzi in disguise. The truth, with like most things, lies somewhere in between. Understanding it requires breaking down how it raises capital, how leverage works, what mNAV means, and why tax treatment makes MSTR especially compelling for international investors.

1. The Mechanics: How It Works

• Capital Raising: MicroStrategy issues convertible notes, preferred stock, or new equity.

• Treasury Allocation: Proceeds are used to buy Bitcoin, now the dominant asset on its balance sheet.

• mNAV (Market Net Asset Value): Investors track how much Bitcoin sits behind each share, net of debt.

• Premiums and Discounts: MSTR often trades above its mNAV, reflecting liquidity, accessibility, and the “Saylor premium.”

In essence, MicroStrategy functions like a leveraged Bitcoin ETF - without the ETF wrapper.

2. Leverage: The Turbocharger

Why They Call It “Intelligent Leverage”:

• MicroStrategy uses a mix of debt + equity issuance to buy Bitcoin.

• By selling shares of its Class A common stock, the company capitalizes on its market valuation, particularly during periods of high public interest in Bitcoin

• But the rate of Bitcoin accumulation outpaced dilution, so each share now represents more Bitcoin than before. The slide is management’s way of saying: “Yes, we dilute shares, but we’re adding Bitcoin at a much faster pace - so shareholders are net winners.”

• How do they do this? Leverage.

Leverage is what makes MSTR different from just holding Bitcoin. So far, until in August 2025:

• Debt Raised: ~$7.2B in low coupon, long maturity convertible notes over the past five years.

• Total Debt + Preferred (2025): ~$11.6B.

• Bitcoin Holdings: 592,100 BTC ($63B).

• Net Bitcoin Exposure: ~$51.4B after subtracting liabilities.

That’s a leverage ratio of ~1.2×. Meaning, theoretically:

• If Bitcoin rises 10%, MSTR equity rises ~12-13%.

• If Bitcoin falls 10%, MSTR falls ~12-13%.

• In practice, premiums expand in bull markets and collapse in bear markets -making MSTR’s swing closer to 1.2-1.5× Bitcoin’s move.

Leverage amplifies outcomes for investors. It’s what makes MSTR beloved in bull markets and brutal in bear ones.

3. mNAV: Measuring the Premium

mNAV is the core valuation yardstick for Bitcoin treasuries. Simply, mNAV if a Bitcoin treasury stock is trading above or below the value of the Bitcoin it holds.

• MSTR mNAV urrent Levels (Aug 2025):

  • Self-reported mNAV: ~1.61

  • Diluted share mNAV: ~1.57

  • External estimate: ~1.4

That means MSTR trades at a 40-60% premium to the Bitcoin on its balance sheet. Investors are paying extra for:

• Simplicity (stock vs crypto wallet).

• Accessibility (fits into brokerages, retirement accounts, funds).

• Tax efficiency (lower LTCG of 12.5% vs direct Bitcoin tax of 30% in India).

• Saylor’s conviction and relentless accumulation strategy.

But premiums cut both ways. If sentiment turns, they can collapse - dragging MSTR down harder than Bitcoin itself.

4. The Ponzi Debate

Why Critics Call It a Ponzi

• Reflexive Issuance Cycle: Stock rises → new equity issuance → buy more Bitcoin → stock rises again. This loop depends on continuous new buyers.

• Dependence on Confidence: If the market refuses to buy new stock or bonds, the flywheel stalls.

• Detachment from Operations: Core revenues are irrelevant - the business model is financial engineering.

Why It’s Not a Ponzi

• Transparency: SEC filings disclose every Bitcoin purchase, debt issuance, and share count.

• Real Assets: Bitcoin is liquid and verifiable, unlike fictitious assets in real Ponzi schemes.

• No False Promises: MSTR doesn’t guarantee returns - risk and volatility are front and center.

• Market Choice: Paying a premium above mNAV is voluntary, not fraudulent.

Verdict: Legally speaking, it’s not a Ponzi - but it is reflexive, reliant on market enthusiasm, and vulnerable if capital inflows dry up.

5. Got it, not a Ponzi. So then is it a bubble?

Funnily, MSTR actually trades like a bubble on top of a bubble:

• If Bitcoin itself is in a bubble, MSTR inherits that froth.

• Add leverage and premiums, and MSTR becomes a high-beta Bitcoin bet.

• That doesn’t make it fraudulent - just very speculative.

6. Why Indian Investors Choose One Over the Other?

Reasons to Buy MSTR

• Easy access through international brokerage accounts.

• Embedded leverage for higher upside.

• Stock-market liquidity, options, and institutional eligibility.

• Crypto ETFs fall in a regulatory gray area.

• For Indian investors, the tax code also flips the equation:

  

  This alone makes MSTR structurally more attractive for long-term investors in India. A 100% Bitcoin rally could translate into a post-tax return nearly double via MSTR versus direct BTC.

Reasons to Buy Bitcoin

• Pure exposure, no corporate risk.

• 24/7 liquidity.

• No premium - you get Bitcoin at spot.

• No dilution or dependence on Michael Saylor’s strategy.

• Now if Bitcoin itself becomes just as accessible - say, through spot ETFs globally, simpler custody in traditional brokerages, or tax treatment that equalizes it with equities - then much of this premium (wrapper value) disappears.

Implication: The premium could shrink or even vanish, bringing mNAV closer to 1. In that world, treasury listings behave more like leveraged Bitcoin trackers than unique vehicles with embedded advantages.

Final Take

MicroStrategy is not a Ponzi scheme - but it is a leveraged, reflexive Bitcoin proxy that trades at a premium. For some, that premium is worth it: lower taxes, easier access, and turbocharged upside. For others, the purity of Bitcoin itself is preferable.

The reality is that MSTR is a Bitcoin Bubble. What you’re buying is not Bitcoin, but the mechanics of leverage, premiums, corporate governance, and tax arbitrage.

And that makes it one of the most fascinating financial experiments of our time.

Apologies that this blog has been quiet for sometime. We’ve been hard at work, and I have some exciting news share with all of you today.

Today marks a major milestone for Paasa.

As most of you know, we started our journey by offering globally-diversified, UCITS portfolios to 100+ clients - including many of you. But we quickly saw that as much as you like to ‘set-it and forget-it’ with the portfolios, you also like to act on your own insights.

I’m excited to announce the launch of our new platform: Trade. You can now trade stocks in realtime across the stock exchanges of US, UK, Europe, and Hong Kong on Paasa.

So whether it’s buying Toyota stock, a China Index, or the US Treasuries - your hands are on the steering wheel now.

I’m incredibly grateful to you for you being part of our journey so far. We’re committed to bringing the world’s opportunities to you, with tax and FEMA compliance taken care of.

I hope you get a chance to try Trade. There’s a lot more to come.

Nitish

PS: Here’s our Trade announcement on LinkedIn.

To understand why Nvidia’s earnings held strong, we need to step back and examine its evolving relationship with China - and how US policy has shaped the battleground.

Nvidia and China: A critical relationship (Pre-2022)

Before US limited chip exports to China, China accounted for ~20% of Nvidia’s data center revenue. Chinese tech giants - Baidu, Tencent, Alibaba, ByteDance - depended on Nvidia’s A100 and H100 GPUs to train AI models across language, vision, and video tasks. In fact, even DeepSeek was trained using Nvidia’s A100s.

“By 2021, Liang [founder of DeepSeek] had started buying large quantities of Nvidia GPUs for an AI project, reportedly obtaining 10,000 Nvidia A100 GPUs before the United States restricted chip sales to China.”

It’s clear that Nvidia’s hardware laid the foundation for China’s AI development.

Biden’s export controls (2022–2023): The first blow

In October 2022, the Biden administration introduced strict export controls. Any AI chip capable of enabling a supercomputer with over 100 petaflops FP64 or 200 petaflops FP32 in a 41,600 ft³ system was now restricted.

As a result, the A100 and H100 were suddenly off-limits for China.

To maintain sales, Nvidia engineered a workaround: the H20 - a downgraded version of the H100. The H20 was a compromise: not as powerful as the H100, but within legal limits.

This was still lucrative for Nvidia, but the policy was signal for China to start urgently developing in-house alternatives.

China’s response (2024-2025): The chip push

China has poured $27.5 billion into semiconductor R&D, AI chip design, and data centers. Huawei’s Ascend 910B was developed as a result of this, which now serves as the current flagship chip, deployed in over 9,000 servers at China Mobile.

Trump’s H20 Ban (2025): The second blow

In April 2025, the Trump administration raised the bar further.

The new thresholds banned any AI chip with >70 TFLOPS FP32, or >600 GB/s interconnect bandwidth.

The H20, Nvidia’s carefully designed compromise, was also now illegal to sell to China.

The financial impact to Nvidia was immediate. Nvidia took:

• a $4.5 billion write-down on unsold H20 inventory

• missed $2.5 billion in sales

• projected an $8 billion hit for the following quarter

The silver lining: Global demand outpaces the China loss

In the AI race, hyperscalers - Microsoft, Google, Meta, Amazon - are absorbing every GPU Nvidia can ship. The AI buildout in the U.S., Europe, and the Middle East has more than offset the loss of the Chinese market.

We observe the trend in Nvidia’s China revenue in subsequent years:

• FY 2023: ~$5.79 billion, accounting for 21.45% of total revenue.

• FY 2024: ~$10.31 billion, representing 16.92% of total revenue.

• FY 2025: ~$17.11 billion, making up 13.11% of total revenue.

While Nvidia’s revenue from China has grown in absolute terms, its share of total revenue has declined. Hence as Nvidia diversifies its chip demand, the impact of aggressive anti-China policy on its revenue is reducing - at least in percentage terms.

Blackwell: Nvidia’s Next Generation (2025+)

Nvidia’s future rests on Blackwell: a next-generation architecture designed for the GPT-5 era. The B100 and B200 chips will power the next wave of AI workloads: large language models, robotics, video AI, and multi-modal systems.

Once again, restricted versions are being prepared for China - B40 and RTX Pro 6000D - crippled enough to stay under export thresholds.

Here’s how Nvidia’s chips compare:

The Takeaway

Congratulations to Nvidia on their Q1 earnings! It showed the continued strength of global AI demand, but also reminded us of the fragility of the AI supply chain in a geopolitically divided world.

While Huawei’s chips lag behind in efficiency, lack the CUDA ecosystem, and depend on SK Hynix (a Korean company), China’s resolve is strong. The lead Nvidia holds is not guaranteed forever.

Amid this as consumers, we are fortunate to live in a time where AI can summarize medical scans, generate personalized financial advice, and run smarter home assistants that understand your daily routines. And as investors, we must decide how to allocate funds across geographies with clarity as the landscape evolves.

Thanks for reading the Paasa blog! If this gave you a fresh perspective on the chip wars, share it with someone who’s watching the AI race unfold.

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If you want to be part of the AI race, buy stocks from our ‘Chips’ playlist - 10 companies that are shaping the global silicon economy.

Since the start of the year, the U.S. dollar has fallen by almost 10% from its January peak. The decline accelerated after the Trump administration began implementing a broad range of tariffs, shifting how investors view U.S. stability.

Normally, market turbulence sends investors toward the dollar. This time, the turbulence came from within. The policies unsettling global markets were U.S.-driven, and the dollar - usually seen as the world's safest currency - began to lose ground.

Understanding why this matters requires looking beyond headlines and into how currency strength, purchasing power, and global confidence interact.

How a weaker dollar changes purchasing power

A weaker dollar means American consumers get less value abroad. For example, $100 now exchanges for about €88, compared to around €97 earlier this year.

That difference shows up across everyday life. Even if Americans don’t buy foreign goods directly, many products - electronics, vehicles, household appliances - use imported parts. As the dollar weakens, those parts become more expensive, and those costs pass through to consumers.

Tariffs add another layer, raising costs further. Estimates suggest tariffs alone could increase the average American family’s expenses by about $3,800 this year. A weaker dollar amplifies that effect across a wider range of goods, without exemptions.

Why some advocate for a weaker dollar

A weaker dollar can theoretically help U.S. exporters. When the dollar drops, American goods become cheaper for foreign buyers, potentially boosting sales and supporting manufacturing jobs domestically.

President Trump, for instance, openly supported a weaker dollar as part of his push to revitalize American industry.

But the global economy today is more connected than it was decades ago. Even products assembled in the U.S. often rely on foreign components. Higher input costs can offset the competitive advantage of cheaper export prices.

Retaliatory tariffs and shifting sentiment abroad can further reduce demand for U.S. exports, limiting the intended benefits.

The larger risk: trust in U.S. financial stability

Beyond trade, the dollar’s strength reflects global trust in the U.S. economy.

For decades, U.S. Treasuries have served as the world’s de facto safe asset — a place investors could turn to during uncertainty. That trust allowed the U.S. to run deficits and finance spending at lower costs compared to most other countries.

The current environment challenges that dynamic. Policy uncertainty has made investors reconsider the safety of U.S. assets. Some have begun shifting capital toward other currencies and even into gold, an unusual move given that volatility typically strengthens the dollar.

Implications of a weaker dollar on portfolios

A weakening dollar has multiple, sometimes opposing, effects on portfolios, depending on asset classes and exposures.

1. Global equities can outperform

When the dollar weakens, foreign stocks (non-U.S. equities) tend to rise in dollar terms. This happens because when you hold foreign stocks, their local currency returns get translated back into a weaker dollar, amplifying your gains.

• Example 1: European stocks returning 5% in euros could translate into a 10%+ return in dollars if the euro strengthens at the same time.

• Example 2: Many rupee funds that invest in dollars usually get a boost in returns because of the dollar’s appreciation against the rupee. However, the inverse was true this last month, dragging down their returns.

2. U.S. multinationals can get a tailwind

Companies that earn a significant share of revenue abroad (large U.S. companies or companies with a U.S. holding with a operating subsidiary outside the US) benefit from a weaker dollar because foreign earnings convert into more dollars.

Tracking error in international mutual funds

Out of curiosity, I opened the app to compare Motilal Oswal’s NASDAQ 100 Mutual Fund with QQQM, the US-domiciled equivalent.

Even after accounting for currency movement, MOFN 100 is showing a significant tracking error. The issue stems from how it’s managed, not how the index performs.

Indian AMCs have reached SEBI’s $7 billion overseas investment limit. As a result, new inflows into international ETFs/mutual funds like MON 100/MOFN 100 can't be deployed. SIPs are still coming in, but no new ETF units are being created. This creates a mismatch: prices are now being driven by supply and demand instead of net asset value.

The fund’s performance could further drift away from the actual index. Next time when someone asks me why I don’t just invest in MON 100, I’ll just show them these graphs :)

Closing note

While the dollar fumbled, investors flocked, and markets meandered - Vaibhav Suryavanshi struck 100 off 35, epitomizing the true risk tolerance of a 14 year old.

No hedging required.

The company beat its earning predictions from the quarter ending December by 23%, proving analysts wrong. Revenue was up 36% year-on-year and the stock rallied from $83 to over $124 at its peak, rising almost 50%. However, 2025 has not been kind to the market, and Palantir has definitely struggled in recent days. Let’s take a look.

What does Palantir do?

A running joke has been that despite the excitement around the ‘mysterious’ tech company, no one is quite sure what they actually make. Put simply, Palantir is a big data analytics company that creates software products for clients, primarily defence organizations like the US military agencies and Western allies, as well as select private companies that require analytics software.

Palantir was founded by Peter Thiel, Jon Londsdale, Stephen Cohen, and Alex Karp in 2003 as a response to 9/11 and funded in part by the CIA. Karp has served as CEO and has become an outspoken leader, commenting on defence policy, politics, and his dislike of financial analysts that are trying to "scr*w Palantir”.

Palantir’s first product was Gotham, launched in 2008. Designed primarily for intelligence and defense applications, the software enabled clients to integrate and analyze large datasets from various sources to identify patterns and potential threats. It’s widely known for being used by the US Army in Afghanistan and Iraq to collate intelligence and detect roadside bombs in conflict zones.

What is driving up Palantir?

The company has since expanded into analytics tools for private customers like Morgan Stanley, National Health Service England, Airbus, and more. The company’s early investment in AI has also paid off in recent years, providing a time advantage in creating and deploying tools, and boosting its market valuation.

Most had never heard of the company until its 2020 IPO, when it emerged from the ‘shadows’ to raise capital. Back then, the company was valued at $22bn with revenues of $742 million the year before. Palantir had never turned a profit before its IPO, with $580mn in losses in 2019 as it invested in product and research.

However, Palantir got the software company treatment, with shares up triple within weeks. The rest is history, as the company has quadrupadable revenue and booked profits, maintaining a rosy picture for the future. Moreover, consistent lower predictions from analysts have seen it beat expectations for four quarters in a row, thirce by double digits, all bringing the stock to its record highs in 2025.

What’s next for the company?

Palantir’s stock suffered a combination of a larger market cool-off and Trump’s plans to scale back spending at the Department of Defense. As a defense contractor, the company is exposed to any cuts to the sprawling US defense budgets. While the company is building up in Europe as well, primarily the UK and France, business there is growing at a modest 4%, while the US at over 20% in recent years. The news caused the stock to tumble from an all-time high of $124 in late February to $85 in April.

Despite revenue standing at $2.87bn, investors expect the company’s punchy profile, lower overhead costs compared to its peers, and focus on advanced technologies will propel it to the front of the emerging $150bn+ AI software market (per Nasdaq) in the next three years. Critics argue that the stock is overvalued given the current defense spending climate and a competitive market.

Early investors have already made huge gains from supporting the stock in early 2024 or even since the IPO in 2020. However, Palantir’s push into Artificial Intelligence Platform has created massive opportunities with companies across industries, evidenced by a strong revenue pipeline from existing contracts.

As always, tech companies carry a much higher premium on price-to-earnings ratios due to their future potential. Palantir’s history shows that it has a strong runway to future revenue, especially as defense takes focus globally. However, stock market uncertainty and spending cuts leave the stock vulnerable to sharp rises and falls, a risk to note.

This article is for informational and educational purposes only, and not intended as financial advice.

Before you rush in, though, there’s one question worth asking: How do fund managers actually get paid? Because understanding that is key to understanding how your money works in these funds.

Two words: 1Management Fees and Carry. They sound simple, but they’re the building blocks of fund manager compensation and they come with nuances that can shape your returns.

1. Management Fees: The Fund’s Fuel

Think of management fees as the fund’s salary- fixed, predictable, and paid whether or not the fund knocks it out of the park. These fees usually hover between 1.5% to 2.5% of the fund’s committed capital or assets under management (AUM).

What do these fees cover?

• Salaries for the investment team and operations

• Endless research, deal sourcing, and due diligence

• Office rent, legal costs, compliance, etc

Management fees keep the fund running smoothly, but they’re not tied to the overall performance of the fund manager. Whether the fund wins big or falls flat, these fees are still paid.

That’s why carry exists: to reward real performance.

2. Carried Interest (Carry): The Real Prize

Carried interest or simply, carry — is the fun part. It’s the slice of profits fund managers earn after investors get their capital back (and sometimes, after hitting a minimum return).

Typically, carry is set at 20% of the fund’s profits, but for elite funds with a track record to outperform other Tier 1 funds (2Sequoia Capital), it can go up to as high as 30%. For newer funds trying to build trust, it might drop to 15%.

Carry exists for a reason:

• It keeps fund managers hungry to deliver outsized returns

• It aligns the manager’s success with their LPs (investors)

• It rewards the fund’s skill in picking winners and building portfolios

The Hurdle Rate: No Free Lunch

Here’s where it gets interesting. Most funds set a hurdle rate — a minimum return (often around 8% annually) that LPs must receive before the GP (fund manager) gets to taste any carry.

If the fund doesn’t clear that bar, there’s no carry

Why?

• It protects investors from paying for mediocre performance

• It ensures fund managers don’t profit from average returns

Waterfall Structures: Who Gets Paid First

Once profits come rolling in, how they’re distributed depends on the waterfall structure. There are two main ways fund managers decide who gets what, and when:

1. The American Waterfall (Deal-by-Deal)

In this setup, GPs start earning carry as soon as individual deals are exited. So even if the fund does great early on and flops later, managers could still walk away with carry. It’s great for GPs but riskier for LPs.

2. The European Waterfall (Whole-Fund Model)

This is the more LP-friendly structure. GPs only earn carry after the entire fund has returned all invested capital plus the hurdle rate. No shortcuts. It ensures investors are taken care of before fund managers start celebrating.

“Reputational Capital”- The Secret Sauce

At the end of the day, it all comes down to trust. The more established and reputable the fund, the greater their track record, the better terms they can command.

That means higher fees and carry percentages and GP-advantageous structures.

On the flip side, if you’re a first-time fund manager, you may need to sweeten the deal for LPs: lower management fee and carry, and investor-friendly terms until you’ve proven your mettle.

Bottom Line: Why Should You Care?

If you’re an investor dipping your toes into alternative assets or an aspiring fund manager looking to raise your first fund, understanding these mechanics is crucial.

A well-structured fee and carry model ensures that everyone’s rowing in the same direction.

Fund managers make money when they make money for you.

So before committing capital, look beyond the pitch deck and glossy returns. Ask about:

· Management fee

· Carry

· Hurdle Rate

· Waterfall Structure

Because in this game, how the fund manager gets paid can tell you a lot about how your investment might perform.

So what is a mutual fund? Well it’s a relatively simple concept. Several people pool together their money and give it to a fund manager. The fund manager, an expert, buys certain stocks which he/she feels will perform well and give the participants in the fund the returns they are looking for. A mutual fund therefore involves stock-picking, with the fund manager using their expertise to choose specific stocks. Their goal is to build a portfolio which will outperform a benchmark index, the S&P 500 for example.

Sounds great right? It is. Mutual funds are simple and safe products. There are strict regulations on the liquidity management of the funds, and you can withdraw your money at any point in time. However, there are certain downsides. As the saying goes, past performance is no guarantee of future performance, and this is true for mutual funds - there is no guarantee that a fund that has beat the market in the past 5 years will continue to do so over the long-term. Additionally, there is enough academic evidence showing that consistently beating the market over the long-term is near-impossible, particularly when accounting for the higher fees charged by active funds1.

Realising that beating the market consistently in the long-run is near-impossible, asset managers came up with a new type of product - index funds2. The logic behind it was simple. If beating the market is impossible, then the safest and best possible returns can only be derived in one way - by becoming the market. That’s what an index is, it's a weighted average of all the publicly listed companies on the market.

At first, index funds were developed along the structure of a mutual fund. They were priced once a day (at the end of the trading day), according to their net asset value (NAV). The NAV is the sum of the value of all the assets owned by the fund, minus liabilities, and divided by the number of units of the fund sold to investors. However, realising that there was even more efficiencies to be found, in 1990 the Toronto 35 Index Participation Units was launched on the Toronto Stock Exchange. Three years later, State Street Global Investors launched the first major ETF, the S&P 500 Trust ETF, which remains among the largest ETFs to this day. ETFs differ from mutual funds in that they are traded throughout the day, with their market prices fluctuating like stocks depending on supply and demand. Investors can also use margin trading and stop-losses on ETFs, while they cannot do this for mutual funds. These factors make ETFs far more liquid and indeed responsive to market movements. Adding to their benefits over mutual funds, ETFs typically have lower expense ratios (the percentage of fees paid to the investment house for their services), and some don’t even have minimum investment amount requirements, making them far more accessible.

To conclude, ETFs took the idea of index mutual funds, and created a more liquid, cheaper, and more accessible product. Recent years have even witnessed the proliferation of active ETFs. These products create an index, actively picked by the fund manager, and create an index to mirror the performance of the underlying assets. The difference here is that while for an index ETF, the composition of the index is dictated by the market, for an active ETF the members of the index are being chosen with the goal of delivering higher returns. Similar to active mutual funds, active ETFs charge higher fees. While the development of active ETFs is certainly welcome, those who prefer passive investment may want to stick with index ETFs.

Frankly, I never felt the need to write this post as I assumed most are intimately familiar with the concept - some know DCA as recurring investments, others know it as SIPs (Systematic Investment Plans). But a recent check-in made it empirically clear to me that many struggle practicing it. Over the last month, U.S. equities have seen a slight correction, while bonds and emerging markets (China specifically) have outperformed. Yet, 3 out of 5 high-risk investors hesitate to continue investing and want the volatility to cool off. Hearing this, I decided to do a full post explaining DCA.

What is dollar-cost averaging?

Instead of attempting to time the market, investors allocate capital consistently over time, accumulating shares at both highs and lows.

For example, an investor committing $1,000 per month to a collection of tech stocks:

• When prices are high, fewer shares are acquired.

• When prices are low, more shares are acquired.

Mathematically, this leads to an average cost per share that is lower than making a single lump-sum investment at an inopportune time.

Why DCA works in volatile markets

No more timing-risk
Most investors - retail or professional - struggle to predict market tops and bottoms consistently. DCA eliminates the need for precision, ensuring continued market participation. This is especially useful if you’re allocating to passive strategies.

Turns volatility into an advantage
Market fluctuations are inevitable, particularly in high-growth sectors like technology. DCA enables investors to accumulate more shares during downturns, improving long-term returns.

Reduces emotional bias
Investors often buy into rising markets out of a Fear Of Missing Out (FOMO) and hesitate during downturns due to a Fear Of Further Losses (FOFL?) DCA brings discipline to investing, ensuring you’re well poised for the long term.

DCA in the context of U.S. Technology stocks today

Recent corrections in technology stocks, particularly following DeepSeek’s announcement, are another reminder that even strong sectors experience drawdowns. These are often opportunities, not signals to pause investments.

• In 2020, the Nasdaq fell over 30% before rallying to all-time highs.

• In 2022, technology stocks experienced a sharp correction, only to recover in 2023.

• Today, AI-driven stocks have surged, followed by expected consolidation.

A sub-optimal decision in 2020 and 2022 was to stop investing.

Where DCA works best

DCA works particularly well for broad market indices (S&P 500, Nasdaq), sectoral growth themes (AI, clean energy), and collections of stocks. It is not as commonly applied to individual stocks or niche opportunities, where valuation and fundamentals play a larger role. It is optimal to DCA into diversified investment-portfolios, where each asset class is uncorrelated. You get in on the ups-and-downs of each holding at different points in time.

Here’s Jack Bogle, the founder of Vanguard, explaining why DCA is important:

Final thought

DCA is great. But make sure the portfolio you’re averaging into aligns with your risk tolerance. DCA only works if you can stay invested - no point if the market uncertainty keeps you up at night.

The S&P 500 is an incredible index. It’s packed with some of the most valuable companies in the world - Apple, Microsoft, NVIDIA - and it’s grown steadily over the decades. It’s simple, low-cost, and has consistently delivered strong returns. So logically the question I get most from investors is “why not just put all your money in the S&P 500 and call it a day?”

Well, the answer depends on what you’re investing for, how long you’re investing, and how much risk you can handle. The S&P 500 is a powerful tool, but like any tool, it works best when used the right way.

But before we talk about why it might not always be the perfect fit, let’s take a moment to appreciate why it’s so great.

Why beating the S&P 500 is so hard

Marc Rowan, CEO of Apollo Global Management, put it best when he said: “How have active managers done? Well, basically 90 plus percent of the time for the past 20 years, they have failed to beat the index. Did they get stupider? No. The structure of our market has changed. It doesn't mean bad, it just means indexed and correlated. And so an investor, particularly an international investor who wants to express an opinion in the US no longer comes in and buys a basket of securities. They buy the index.” [4:47 in the video above]

That’s what makes the S&P 500 so special. It’s tough to beat. Even the most experienced wealth managers with all the resources in the world often struggle to deliver better returns without taking on more risk.

It’s no wonder the S&P 500 has become a go-to for many investors. Its simplicity and consistent growth make it a hard act to follow. Over the long run, it has outperformed most actively managed funds, and on a risk-adjusted basis, it’s one of the most efficient tools out there for building wealth.

But it’s not always the right tool for every situation.

Why it shouldn’t be 100% of your portfolio

The S&P 500 is great, but depending on your goals, it might not give you everything you need.

1. Different goals, different strategies
Imagine you’re saving for your child’s education. When the goal is 15 years away, you might start with a portfolio heavily invested in equities like the S&P 500. But as college gets closer, sticking with all stocks becomes risky. You’d want to gradually shift toward more stable investments like bonds to protect what you’ve built.

2. Diversification matters
The S&P 500 only covers large U.S. companies. It leaves out international stocks, bonds, real estate, and other asset classes that help reduce risk and smooth out returns over time. A well-diversified portfolio across asset classes and geographies can perform better in different market conditions.

3. Markets aren’t always predictable
The S&P 500 has had long stretches of growth—but also periods of decline. If you’re investing for retirement or a short-term goal, riding out a downturn may not be an option. Adjusting your strategy to balance growth and protection is key.

A full toolbox for building wealth

At Paasa, we’re big fans of the S&P 500, but we go beyond it. Our portfolios fit different goals, time horizons, and hence risk profiles.

We mix passive strategies (like the S&P 500) with rebalances when needed. We diversify across multiple asset classes and use mean-variance optimization, based on Modern Portfolio Theory, to aim for the best balance of risk and reward. And as your life and market conditions change, we adjust your portfolio to keep it on track. This is the exact strategies that companies like Vanguard, Schwab, and Wealthfront use for their HNI clients in the U.S.

Think of the S&P 500 as a hammer—it’s great for certain jobs, but it’s not the only tool you need. We give you the full toolbox.

The bottom line

The S&P 500 is an incredible starting point. But building sustainable wealth takes more than one index. Your portfolio should reflect you—your goals, your time frame, your tolerance for risk.

We believe smart investing is about creating a plan that grows with you, balancing long-term growth with preservation along the way.

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But most of our customers use Paasa to save for their children’s education in the U.S.

Why education drives investments

The cost of education is rising at an alarming rate. In the U.S., the average cost of tuition and fees at private colleges has increased by over 134% in the last 20 years. Today, a four-year degree at a top university can cost upwards of $300,000, and that number continues to rise.

For families earning in a depreciating currency, the challenge is even more significant. Over the past decade, many emerging market currencies have lost value against the U.S. dollar, making tuition costs increasingly unaffordable.

What may have been a manageable amount a few years ago can quickly double or triple in local currency terms, forcing families to contribute more just to keep up.

The risk of not planning early

Failing to plan early has consequences. A parent who starts saving when their child is 5 will need to put away around $500 per month to cover tuition at a private U.S. university. If they wait until their child is 15, that number jumps to over $2,500 per month. Without proper planning, families may have to take on significant debt or limit their child's educational opportunities.

The effects of currency depreciation further exacerbate the problem. If a local currency loses value against the U.S. dollar by 5-10% per year, tuition costs in domestic terms will rise even faster than inflation. This means parents who delay saving may need to contribute significantly more just to maintain the same purchasing power for future tuition payments.

The takeaway here is clear: save in dollars, not in your local currency. How?

Glide Path Investing

Glide path investing is a structured approach to managing risk over time. It adjusts asset allocation as the investment timeline progresses. Parents saving for education typically start with higher-risk, high-growth investments and shift toward more stable assets as the enrollment date approaches.

This is the exact strategy used by parents in the US to save for their child’s education as well. The plan is carried out by ‘a 529 savings plan’, a federally approved scheme that parents enroll in.

Key aspects of this plan include:

• Early Growth Focus: A higher allocation to equities in the initial years allows for capital appreciation.

• Gradual Risk Reduction: As the investment horizon shortens, the portfolio transitions to lower-risk assets, such as bonds and cash equivalents, to protect against market volatility.

• Automated Adjustments: A structured glide path ensures that risk exposure decreases systematically, reducing the likelihood of large losses close to the withdrawal period.

How Paasa helps parents save for education

Paasa brings the strategic benefits of the 529 savings to everyone.

Once you’ve opened your Paasa account, we algorithmically carry out glide path investing depending on the time-horizon, monthly investment, and risk you’re willing to take. Then, Paasa will automatically adjust your allocations to align with your plan (with your consent), reducing risk and ensuring you're well-positioned to achieve your savings goals.

Closing note

Education costs are accelerating. If tuition inflation continues at its current pace, today’s newborns will face an even higher financial barrier to higher education.

Subscribe to our blog! And as with most things investing, the key here is simple: start early.

This "flight to safety" showed just how nervous markets are about the future.

Treasuries’ comeback

The rally in Treasuries yesterday wiped out losses from earlier this year. Back then, concerns over inflation and political uncertainty had hurt the bond market. The 10-year Treasury yield fell 12.5 basis points to 4.50%, its biggest drop in two weeks. At the same time, the two-year yield slipped to 4.17%, the lowest it’s been in over a month.

This movement focused on 5 to 10-year maturities, as investors sought stable ground in an otherwise volatile market. When we talk about "5 to 10-year maturities," we’re talking about bonds that will pay back the full amount (plus interest) in 5 to 10 years.

For context:

• Short-term bonds (like 1-2 years): These are safer but pay less interest. People use them when they think things will improve soon and want their money back quickly.

• Long-term bonds (20-30 years): These pay more interest but are riskier if the economy changes a lot over time.

• The "5 to 10-year" bonds are a middle ground. They’re safer than long-term bonds but still offer decent returns compared to the short-term ones. During uncertainty (like when tech stocks fall), investors want something stable but also rewarding, so they often pile into these medium-length bonds.

What sparked the selloff?

Hard to ignore: DeepSeek - the Chinese model, which was cheaper to produce, implying a higher degree of cost efficiency. This raised doubts about the dominance of US technology companies. Investors began questioning whether high valuations for US tech stocks were justified.

George Saravelos of Deutsche Bank compared this moment to the DotCom crash of the early 2000s. Back then, a sudden tech revaluation caused major market disruptions.

Global ripple effect

The selloff wasn’t just limited to stocks. Safe-haven currencies like the yen and Swiss franc surged. The yen climbed 1.5% to its highest level in five weeks. The Swiss franc jumped 1% as well. European bonds also gained ground, with debt from Germany, France, and Italy benefiting from the flight to safety.

What Comes Next?

Monday’s events highlight how fragile the market is right now. For now, it’s clear: when uncertainty looms, investors turn to the stability of US Treasuries.

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Want to learn more about Paasa? Ask DeepSeek :)

This practice is known as currency hedging, and on paper, it almost seems like a no-brainer. Interestingly, we learned that all that glitters may not be gold.

Here, we explore the nuances to currency hedging.

Studying in the UK

The UK is a popular destination for students who want to pursue higher education. Close cultural links with India, simple(r) immigration policies, and ease of access all make it ideal. However, the sliding value of the Indian rupee has made studying in the UK a far more expensive endeavor in recent years. But what if you had saved in 2020, for studies in 2022-2025, two to five years in advance.

A top-tier university in London costs roughly between £20,000 to £27,000, depending on the course. Combined with living expenses, the bill rises to close to at least £100,000 for a three-year undergraduate degree. Today, this translates to ₹1.05 crores at today’s value. But five years ago, this figure was 13.58% lower, at ₹93.44 lakhs.

The solution seems simple right? Save in pounds. But there are a few key points. First of all, every currency has its vulnerabilities, influenced by foreign and domestic policy. The pound saw massive falls in early 2020 (Russia’s Ukraine invasion) and mid-2022 (Liz Truss’ disastrous economic policies). While the currency has since recovered steadily for a myriad of factors, such shocks can hardly be protected against.

This model also doesn’t account for two of our favorite topics: opportunity cost and taking risks.

Opportunity cost of the hedge

Education requires dedicating saving, which means no high-risk assets and stable savings accounts or overnight mutual funds. In January 2020, the Bank of England's interest rate stood at 0.1%, spiking to 5.25% to combat inflation in 2023, and now stands at 4.75%.

If £100,000 is held in a savings account, assuming a bank rate, five years later, you would have £113,073. (Note that this figure is almost exactly the same as the difference in GBP vs INR over five years). That’s an increase of 13% over the five years.

Now let’s assume you saved the same amount in India, taking advantage of the much higher interest rates. Given the impact of COVID and inflation, rates in India fluctuated too, falling to 4% and all the way up to 6.5% at their peak and current rate.

Over our five-year period, the initial ₹92.44 lakhs would increase to ₹1.22 crores, or £115,000 after 5 years, an increase of 32.91%. Notably, this increase covers both the currency depreciation (13.6%) and the interest in GBP (13%) and adds another 6.9% on top. This final amount is the opportunity cost the hedge.

In an ideal free market, currency appreciation in one country is covered by higher interests in the other.

Risk

Currency can quickly move against you as well. As we saw in our pound vs rupee analysis, sharp decreases can suddenly leave you exposed, and with the entire corpus already in one currency, there are few options other than waiting. This means holding in INR is the better solution over a long period, assuming a similar high-yield savings account.

It should be noted that education savings should never be conflated with investments. We’ve gone into great detail about how diversification of assets is key to a burgeoning portfolio and long-term benefits. Moreover, given the instability of even major currencies that we’ve seen above, having a nest egg abroad is vital to planning.

An efficient market will be able to balance the risk of currency arbitrage with higher interest rates, making risk unnecessary. While markets can face plenty of bubbles and shock changes, the rupee follows this hypothesis today.

Learn more about Paasa and our investment thesis here.

Here’s the breakdown: $100 billion of the investment will roll out immediately, with the rest coming over the next four years. The first data centers—massive, half-a-million-square-foot facilities—are already being built in Texas. Once completed, these hubs will support everything from advanced healthcare analytics to the development of artificial general intelligence (AGI).

Why This Matters

AI is hungry - hungry for data and, even more critically, for computing power. Stargate aims to meet that demand by creating 20 ultra-modern data centers capable of handling the massive workloads required for cutting-edge AI technologies.

Ellison emphasized AI's potential to revolutionize healthcare, including early cancer detection and personalized vaccines. He explained that AI could analyze blood tests to identify cancer fragments and quickly develop vaccines after gene sequencing tumors.

OpenAI CEO Sam Altman, SoftBank CEO Masayoshi Son, and Ellison all credited Trump for helping bring the project to life. Son even went as far as to say, “We wouldn’t have decided to do this unless you won.” Altman also emphasized how the initiative lays the groundwork for AGI, a transformative tech frontier.

The Energy Question

While Stargate is a game-changer for AI innovation, it comes with a hefty energy price tag. AI data centers require immense power to function, and as more facilities come online, the nation’s electricity demand will soar.

Trump addressed these concerns by offering incentives for companies to build on-site power plants, making it easier to manage their energy needs - but I’m curious to see how this plays out.

Still, experts warn of potential strain on the U.S. energy grid. A December report from the North American Electric Reliability Corporation pointed out that about half the country could face power shortages within the next decade as demand rises from AI and other electrification efforts.

Economic Ripple Effects

Stargate’s announcement also marks a shift in federal AI policy. Trump’s move to repeal a Biden-era executive order regulating AI risks signals a more innovation-first approach. Investors seem optimistic, with Oracle’s stock jumping 7% after the news broke. Other tech giants, including Nvidia, Arm Holdings, and Dell, also saw gains. Congratulations on the rally to everyone who had the S&P 500 or NASDAQ 100 in their Paasa portfolio - which is most of you!

AI has been on a meteoric rise since OpenAI launched ChatGPT in 2022. The Stargate project reflects how quickly AI has gone from a niche innovation to a critical driver of economic growth.

The Bigger Picture

I see Stargate as more than just a tech project - it’s a statement. By putting resources into AI infrastructure, the U.S. is signaling its intent to dominate this rapidly evolving space.

It’s a bold bet on the future, and if it succeeds, it could reshape the global AI landscape. Whether the country can navigate the energy and infrastructure challenges remains to be seen, but one thing’s for sure: the race for AI supremacy just got a lot more intense.

Building a product platform from scratch is like raising a baby. You start with the basics: choosing the right font, color palette, tone, logo, and other details that define the product's personality. These decisions shape the brand's future.

Then, there’s the challenge of roadmapping features. Poor prioritization can lead to users giving feedback on unnecessary features or limit flexibility in execution. In my previous product roles at SoFi and UIPath, I had weeks to discuss and navigate internal processes to get approvals, but time is of the essence at a startup. We run a lean format for user feedback, quickly implement changes, and trust our instincts.

Thirdly, a high standard for quality and trustworthiness is non-negotiable for a fintech app. We must ensure that users feel confident and secure using our platform to manage their money. Our goal was to align the product with our long-term vision while remaining flexible enough to adjust based on new user insights

I established design principles suited for a startup to guide us through this phase.

1. Compromise on aesthetics when necessary, but never on clarity. As a designer, any screen or feature can be presented aesthetically pleasing and functional, but this takes time - usually many iterations. For our MVP, we focused on presenting the most critical data clearly, even if the visuals weren’t as refined as they could be. This allowed users to focus on the core value-adds when giving feedback. Plus, it enabled us to validate our direction quickly without over-investing in features that might not work. This has made it easier to pivot our hypothesis based on user feedback.

2. Postpone design decisions when possible to make more informed choices later.

One example of this was the color selection for our app. In fintech, colors often carry significant meaning in the customer’s mind (e.g., indicating profit vs. loss). We decided to start with a minimalist black-and-white design, only introducing color when necessary to convey meaning. As new use cases emerged, we gained better insight into how color should be used. This approach allowed us to experiment with color thoughtfully, ensuring the interface evolved with user needs.

3. Avoid jargon. I’ve always disliked reading financial apps or documents filled with jargon. While the concepts weren’t complicated, the language often confused them unnecessarily. With our app, we aim to keep everything simple and accessible. When technical terms are unavoidable, we use info icons to provide clear definitions, ensuring users understand what they’re looking at.

4. Design around the user’s mental model. Many fintech apps structure their information architecture (IA) to prioritize cross-selling products. For example, they might highlight an “Explore” page while burying your account details in a deeper layer. At Paasa, we designed the IA based on how users typically expect to navigate a financial app. We display key information - like net worth and portfolios - front and center, while any upsell opportunities take a backseat.

Starting from scratch, we understood that our MVP wouldn’t be as comprehensive as other financial apps. These guiding principles have helped us stay focused, evaluate the quality of our platform, and define the core values we wanted our product to embody. I expect these principles to evolve with our business but for now, they’ve served as well while building from 0 to 1.

John Templeton, among others, made rebalancing a cornerstone of his approach. Templeton used an early version of the cyclically adjusted price-to-earnings (CAPE) ratio to estimate valuations for the overall U.S. stock market. Essentially, his advice was: if valuations are too bubbly, sell; if less bubbly, buy.

And you guessed right: he is the Templeton in Franklin Templeton.

Rebalancing, in a nutshell

So what is rebalancing? You’ve picked a portfolio that has a certain allocation - say it’s a 90-10 portfolio (90% equity, 10% bonds). Over time, the portfolio drifts away from that allocation - perhaps after a long bull cycle, the composition is now 95-5. ‘Rebalancing’ brings it back to the original allocation. An advisor would ‘rebalance’ in order to normalize the allocation back to 90-10.

Why do we bring it back?

The simple answer is you don’t want to take on too much or too little risk. You want to take on the level of risk you agreed to take.

When your portfolio shifts from 90-10 to 95-5, you become overexposed to equity. This means the portfolio is more volatile - more risky - than you had initially started off with. So when the market corrects, a 95-5 portfolio will get hit harder because there’s lesser cushion from the bonds and more swing from the equity.

For more on how risk impacts gains, check out our detailed piece on risk.

Back to rebalancing.

For investors, the alpha often lies in 1) how and 2) when the rebalancing happens. This, empirically, is the difference between a good and bad financial advisor.

How should I rebalance?

1. Sell here, buy there: You use the proceeds from a sale of one asset to rebalance your portfolio. If you’re selling at a profit, i.e, paying capital gains tax, you should avoid this method unless absolutely necessary.

2. Draw money from bank: Not so bad if you have dry powder (uninvested cash).

3. Use dividends: Second best way to rebalance. You’re not dipping into your bank account - just effectively using the dividends from your existing holdings.

4. Tax Loss Harvesting (TLH): Best.

   1. Example: Suppose your equity allocation drifts from 60% to 70%. To rebalance, you identify underperforming stocks within your equity holdings and sell them. The losses offset gains elsewhere, minimizing the tax impact, while the proceeds fund the bond purchases needed to restore balance.

So according to Paasa’s Hierarchy of Rebalancing ∆:

When should I rebalance?

Fixed period

Fixed-period implies the rebalance happens every month, quarter, half-year.

The key here is frequency. Ideally, the frequency would align with market cycles. Too much rebalancing could take away the gains, especially if there are transaction costs. Too little rebalancing could worsen the ‘drawdowns’ (another term for downswings).

You want your fixed-period rebalance frequency to ideally coincide with the market cycles. So you rebalance just before the down trend or up trend starts.

Data Point: A Morningstar study found that quarterly rebalancing balances returns and risk more effectively than monthly or annual rebalancing in most cases.

Drift band

This method ignores the calendar. Instead, it focuses on how much your portfolio has deviated from the target composition. For example, if your equity allocation is off by ±5%, rebalance!

Paasa uses a ±5% drift-band to rebalance.

Limitations of rebalancing

Let your winners win

Many investors sold NVIDIA too early when it surged from 10% to 40% of their portfolio. You might think, “If it’s going up, then why don’t you let it go up.” This sounds reasonable. But this is hindsight bias: most stocks don’t trend upwards indefinitely.

However, overbalancing can stifle growth. Broad Market ETFs might benefit from regular rebalancing, but for concentrated bets (like NVIDIA or angel investments), rebalancing could reduce outsized gains. Venture capitalists often write-off most investments, relying on a single winner to return their entire fund. Rebalancing is clearly counterintuitive in such cases.

If you think you have a potential winner in your portfolio, evaluate fundamentals and market outlook before agreeing to an algorithmic rebalance.

I didn’t know they were related!

A diverse portfolio typically includes assets with varying degrees of correlation. Equities and bonds are usually uncorrelated, except during times of economic stress, like when inflation and real interest rates are both high. In these cases, they can move in sync.

In such cases, you might want to reconsider your entire portfolio composition rather than just rebalancing.

Transaction Costs

Frequent rebalancing incurs trading commissions, which can eat into returns. While Paasa offers zero-commission transactions, investors should still generally be cautious of overtrading.

Final thoughts

When done systematically, rebalancing helps prevent your investments from becoming suboptimal. At the same time, recognize situations where rebalancing might not be appropriate or when you need to rethink your portfolio strategy altogether.

So, (how) do you rebalance?

When looking at the USD vs INR graph, it’s important to recognize what’s actually occurring beneath the headline rate. The drop in INR value is being caused by either an increase in the supply of rupees, due to capital outflow of trading INR for foreign currencies or using INR to purchase foreign imports, or the decrease in the demand of rupees, due to falling foreign investments on the back of slowing growth and market volatility.

So what’s causing these phenomena today?

The Trump effect

Since November 5th - around the time Paasa launched and the day Trump won office - the dollar has risen by 2.47% from ₹84. A strengthening dollar is bad news for India and residents who are looking to spend on education, travel, or investments in the near future. However, many are pointing to a further slide in the coming months, led by the incoming administration’s economic policies.

Bank of America analysts expect the dollar to hold its strong position through the first half of 2025. Trump has promised three key economic policies, centering around:

• trade tariffs

• cutting taxes across the board

• and deregulation of industry

All three will likely fuel US corporations in different ways, increasing revenues and profits, at least in the short-run.

Tariffs have been Trump’s longest-standing economy belief, ranging back decades. Most believe that COVID derailed plans in 2020 for Trump to expand tariffs to cover more countries, however, 2025 seems to bring new wings to the plan. Reports in the last week have indicated that Trump might look to universally tariff only goods from certain vital sectors, such as defense supply chains (steel, iron, etc.) or energy supplies (batteries, rare minerals etc.). However, President Trump decried the plan on his social media platform, insisting on a universal 10-20% tariff on all goods.

However, it’s hard to ignore that all of Trump’s actions carry a significant risk of inflation as well. Considering the US has only recently emerged from a bout of high prices, with consumers still feeling the pinch on a daily basis. Moreover, the Fed’s decision to ease rate cuts in 2025 to just two reductions signals growing persistence in high prices, which could trend the wrong way if growth isn’t balanced. Universal tariffs, for instance, would lead to immediate price rises for consumers on essentials like food and electronics.

While the dollar remains strong, 2025 will test its resilience as the US looks to upend its historical trade practices.

Things are going well in the labor market

In a New Year’s present to those holding dollars, the US added 256,000 jobs in December per the Labor Department, analyst expectations of around 160,000 on average. Unemployment fell to just 4.1% as median duration of unemployment and permanent job losses dropped as well.

The strong labor market will fuel the Fed’s plan to hold rates steadier for longer, allowing it to combat the final bits of inflation holding back customers. Markets responded with drops across the board, with the S&P 500 falling 1.54% on the news of likely fewer rate cuts. (Covered this in detail in an earlier article)

The resilience of the job market, despite expectations of a slowdown in the coming months, is another reason for investors holding US assets with high rates. With the dollar continuing to appreciate the Indian rupee, we turn to see what’s happening with other global currencies.

Headwinds in rivals

It’s not only the rupee that has taken a beating against the dollar in recent days. The euro, pound, and yen all fell as they each contend with domestic troubles. For India, market volatility has been in focus. GDP numbers in recent months have indicated moderating growth, a worrying sign in an economy still struggling with persistent inflation.

On a closing note, all signs point to the rupee struggling against the dollar in the coming months. While this year’s budget could bring relief to salaries employees in a bid to boost consumption, inflation remains a troubling factor.

Diversifying into dollar-denominated assets remains a wise decision generally, allowing for both safety and steady gains, without the feeling of being squeezed by the USD / INR exchange rate.

2024. As the year ends, many of us are taking stock—celebrating wins, setting new goals, and looking back on the moments that shaped our lives. Starting 2025 on a lighter note, I wanted to write about what we as humanity have achieved in 2024, noting the discoveries and innovations that have propelled us forward.

Before we get into it, time for some 2024 finance trivia!

Fact: The S&P 500 grew 23.3% in 2024, excluding dividends. This added over $10 trillion of shareholder value.

Question: Guesses for the S&P 500’s top gainer? (Hint: It’s not NVIDIA)

Answer: Palantir → PLTR grew +340.5%. For context, Bitcoin grew +130%.

The World Wrapped

Out of the many great things we did, these stood out.

Global Innovations

• AI Takes the Lead: AI tools became indispensable in 2024. From adaptive learning platforms in schools to personalized healthcare systems optimizing treatment plans, artificial intelligence continued to revolutionize the way we live and work.

• Fusion Energy Breakthrough: The announcement of the first commercially viable nuclear fusion reactor marked a historic step towards clean and limitless energy! This news wasn’t given enough screen-time with AI stealing all its thunder.

• Autonomous Transportation: Cities worldwide embraced autonomous buses and delivery systems, with advanced regulatory frameworks paving the way for safer and more efficient urban mobility.

Space Exploration Milestones

• NASA’s Lunar Gateway: A crewed mission established a sustainable presence in lunar orbit, setting the stage for humanity’s next frontier: Mars.

• Private Space Travel: SpaceX and Blue Origin commercialized suborbital tourism, while Rocket Lab introduced cost-effective satellite launches for startups, democratizing access to space. Brownie points to SpaceX for its rocket launch and catch in October - watching it was nothing of short of phenomenal.

Markets and Finance

• Crypto Regulation: Governments introduced standardized frameworks for digital currencies, making them mainstream financial tools. And we have crypto bulls all-around after Trump’s election.

• Emerging Markets Surge: Countries like India, Indonesia, and Nigeria led global GDP growth, driven by tech exports and digital financial inclusion.

Cultural and Social Highlights

• AI in the Arts: AI-generated films and artwork redefined creative boundaries, blending human ingenuity with machine precision. 2024 also saw a writer’s strike questioning its implications, understandably why.

• Cultural Crossover: Korean and Indian cinema dominated global box offices, fusing traditional storytelling with cutting-edge VFX.

The milestones of 2024 have created a new, better normal. This was the first year that blended AI technology, sustainability, and creativity into everyday life. From bold strides in space and energy to cultural innovation, this new era reflects humanity’s resilience and boundless potential.

Wishes for 2025.

Before we jump in further, let’s quickly discuss what bonds are. Bonds are a loan made to a corporation or government by an investor in exchange for a fixed return rate. This means investors receive a fixed interest income on these bonds as well as the promise of the principal back after a period. You may have heard of the US Treasury Note (T-Note) lasting one to 10 years, the T-Bond lasting 20 to 30 years, and the T-Bills lasting four to 52 weeks. The yield on a bond is the annual interest an investor earns each year until maturity.

Notably:

What happened in 2024?

2024 marked a change in the stance of most central banks toward lowering interest rates as inflation eased. The lower interest rates, in turn, will likely see higher yields and prices on bonds, boosting investments in this asset class. The movement of the bond market is clearly linked to rates, as seen in this graph.

Bonds are seen as the ‘safer’ choice to equities, explaining why fears of a recession in the US led to a sudden spike in yields and in turn, lower prices. However, as such fears eased and the Fed indicated slower cuts next year (which we covered recently), there was a selloff in the week before Christmas worth nearly $6 billion.

A look at corporate bonds

As we noted earlier, bonds are issued by companies as well. Corporate bonds had a particularly strong 2024, with investors heavily buying fixed-income assets. The move toward bonds was fueled by two major factors. The first was a bullish stock market pushing risk-averse investor toward safer corporate bonds, hedging their bets. The second has been a lower credit spread between government and corporate bonds since the US Presidential elections, allowing companies to issue bonds cheaply to keen investors.

The week after the election alone saw a massive $50bn raised by corporations in the US, with big names like Goldman Sachs and Caterpillar taking advantage. The lower credit spread means that companies can pay small interest premiums over the US Treasury bonds to secure investment.

As we enter 2025, keep an eye out on the bond market as investors eye whether the economy will continue to grow under the new administration or whether policy changes lead to losses. This will dictate whether bond markets will continue their record runs.

The headline story for the week has been the sudden drop in the US markets following the Federal Reserve’s indication that it will slow rate-cutting in 2025. While the S&P 500 closed down just 2.19% on Friday for the week, buoyed by a stronger inflation report in the closing days, questions linger over high rates for the coming year.

The sell-off followed Chairman Jerome Powell’s comments indicating two rate cuts for next year, or half a percentage point. He added, “I think from here it’s a new phase and we’re going to be cautious about further cuts.” With consistent rate cuts fueling a record-breaking year for large indices, what should you look out for in 2025?

S&P 500’s weekly performance, with Wednesday and Friday both showing shifts in the market. Source: WSJ

Traditional movers: rate cuts, inflation, and more

This week was exemplary of investors reacting to interest rate announcements by the Fed. Despite another cut, fears of 2025 moves led to a sharp drop on Wednesday, with investors believing higher rates could affect borrowing just as businesses bounce back. The move led some to label Powell as the “Grinch who stole Christmas.” We will explore the impact of interest rates on the market next week, so do subscribe!

Just as it looked like the holidays were ruined for some, Friday brought some respite. Inflation, measured by the Fed using the Personal Consumption Expenditure, rose by 2.4%, just shy of expectations of a 2.5% rise. This positive news led to an uptick of just over one percent in most major indices, including the S&P and the Dow Jones. With inflation still cooling, all signs point to easier monetary policy for next year, despite the Fed’s end-of-year announcement.

The drop in markets was also deeply influenced by future policy measures. For one, the US government found itself on the brink of a shutdown after a last-minute bill was scuttled by President-elect Trump and Elon Musk, leading to skepticism in the markets. However, Congress did reach a pared-back agreement in the late hours of Friday to avoid a shutdown, ensuring continued services through March.

Output Booms

With the markets down, many investors will likely be wondering if the downturn will be temporary or prolonged. Here, we can turn to less commonly cited economic indicators for the health of the underlying economy.

Output, measured by the S&P Global Flash US PMI, hit a three-year high in December, rising to 56.6, up 1.7% from November. The charge was led by the services industry, which saw its highest levels thanks to lower inflation and overall spending resilience. However, on the flip side, manufacturing PMI fell 1.7%, continuing a months-long contraction fueled by policy concerns of the incoming Trump administration.

Manufacturing companies have noted concerns about tariffs proposed by the new regime, which will engulf most of the US’ biggest trading partners such as China and Canada. Added to ongoing supply chain issues and higher costs, the index points to continued pressure for a major component of the economy.

However, the services sector continues to boom on the promise of lighter regulation and pro-business policies by the incoming administration. With January 20th less than a month away, investors are preparing for a major policy shift from the last four years that could upend years of relative continuity.

Looking ahead

The Global Flash PMI is only an example of a metric to measure the future health of the economy. Most notably, the stock market may move independently of such indicators, relying on prevailing sentiments. All that said, this week’s swing clearly shows that we have entered a new phase of economic recovery and Trump’s economic policies hold the cards for the markets.

Next week, MicroStrategy, the software company that transformed itself into a Bitcoin powerhouse, will officially join the Nasdaq 100. This is a significant milestone for i) MicroStrategy and ii) Bitcoin’s integration into institutional investing. With over 200 funds and ETFs tracking the Nasdaq 100, institutional portfolios will now gain exposure to Bitcoin through MicroStrategy’s stock.

Why MicroStrategy Matters

MicroStrategy’s story stands out on the Nasdaq 100. Led by co-founder Michael Saylor, the company made a bold move in 2020 by adopting Bitcoin as its treasury reserve asset - and it hasn’t slowed down since.

A major bitcoin player: MicroStrategy holds 439,000 Bitcoin, valued at over $45 billion. This represents around 2% of the total Bitcoin supply, positioning the company among the largest institutional holders of the cryptocurrency.

Skyrocketing Growth: MicroStrategy’s stock has soared 550% this year, fueled by Bitcoin’s climb to a record high of $106,000.

The Flywheel Strategy: What sets MicroStrategy apart is its unique playbook. Unlike Bitcoin ETFs, the company raises funds through long-term convertible debt - sometimes at 0% interest - to expand its Bitcoin holdings. This creates a repeating cycle:

1. Raise capital by issuing debt.

2. Purchase Bitcoin to increase exposure.

3. Boost the stock price as Bitcoin’s value rises.

4. Repeat the process with new fundraising rounds.

This strategy has turned MicroStrategy into a proxy for Bitcoin itself. Investors seeking Bitcoin exposure - especially those in traditional index funds - now get it automatically when they hold QQQ, CSNDX or any Nasdaq 100-tracking product.

The Risks of Betting on Bitcoin

While this strategy works brilliantly during a Bitcoin bull market, it comes with significant risk. If Bitcoin’s price were to decline, MicroStrategy’s stock could fall sharply, creating ripple effects for ETFs and funds tied to the Nasdaq 100.

For institutional investors holding QQQ or similar products, this indirect exposure to Bitcoin may be a welcome diversification or an unexpected gamble - depending on how they view Bitcoin’s long-term potential.

A Pivotal Moment for Bitcoin Adoption

MicroStrategy’s addition to the Nasdaq 100 is more than just another index reshuffle. It signals growing acceptance of Bitcoin within traditional finance and puts the cryptocurrency firmly on the radar of institutional investors.

Bloomberg analysts estimate it will only get a 0.47% weight, making it the 48th biggest holding in the index (out of 100). An analyst mentioned, "This weighting equates to about $2.1b of buying via all the ETFs that track the index which have $451b collectively.”

But it also raises a critical question: Is this a turning point for Bitcoin’s mainstream adoption or a risky move that could add volatility to one of the most important stock indices in the world? What do you think?