The best way to look at it is that passive investing is inflating the prices of stocks. When people purchase $SPY for example, they're betting on the uptick of the index as a whole, not the individual companies making up the S&P 500. This passivity pushes prices higher for the underlying securities which are being purchased by the fund in question as more investors buy into the fund. Therefore, prices are increasing in an environment where value and company performance aren't taken into account.

Over time, the argument is, these underlying securities will continue to increase in value due to this trend, since this style of investing has been simple, profitable, and allows for easy portfolio diversification.

TLDR: Any time securities are purchased without consideration for the value of the underlying asset, you get a bubble. Think 2008, where derivatives weren't analyzed closely to show they were full of poor credit, garbage, sub-prime mortgage loans.