Bitcoin and S&P 500: How to Compare

Investors looking for an easy strategy often use market indices such as the S&P 500. By purchasing a single index fund that tracks the top 500 companies, investors can tie their wealth to the overall health of the market.

In fact, our investment approach is to hold most of our investments in simple index funds like the S&P 500 or the overall stock market! – The percentage allocated to Bitcoin is very small. (Learn more about our approach here.)

There are still many traditional investors who scoff at this strategy and avoid Bitcoin altogether. The questions they should ask are: How does Bitcoin compare to the S&P 500??

In this article, we look at the historical performance of the S&P 500 and Bitcoin to show why our strategy has performed so well and help convert some skeptics to a new way to invest.

What is S&P 500?

S&P 500 or Standard & Poor’s 500 is a stock market index that measures the stock performance of 500 large companies listed on American stock exchanges.

It is one of the most commonly followed stock indices and is considered an indicator of the U.S. economy. The index includes companies from all sectors of the economy, providing broad information about the health of the overall market.

Historically, this index has been Since 1928, it has achieved an average annual total return of approximately 10%.. Since the start of the last bull market in March 2009, the S&P 500 has risen more than 530%, rising from about 735 to 5,026 as of February 2024. This rapid rise has caused the benchmark group of stocks to experience a compound annual growth rate (CAGR). That’s more than 14% (or 16% including dividends) over the last 14 years.

What is Bitcoin?

Bitcoin is a digital currency based on blockchain technology. As the first cryptocurrency, it is also the most valuable cryptocurrency. However, they are much more volatile than traditional stocks or bonds.

Although Bitcoin has been around for much less time than the stock market (launched to the public in 2009), it has generated massive returns for early investors during that time.

Early Bitcoin price data is scarce, but the price rose to a high of $69,000 in November 2021. This is a 138,000,000% increase from the original recorded price.

(This chart shows data from 2010 to February 2024.)

Since reaching its peak price, the price of Bitcoin has fallen significantly, sending the digital currency below $17,000 before rebounding to its current level of $51,000.

Over the past five years, Bitcoin has experienced a CAGR of approximately 68%. Bitcoin Market Journal. That means Bitcoin’s annual returns have been nearly five times that of the S&P 500 over the past five years..

Using History to Evaluate Bitcoin vs. S&P 500

As you saw in the previous chart, over the past five years we have About 50% growth in the S&P 500On the other hand, we Bitcoin grows 500% In the same period.

However, keep in mind that these impressive numbers depend on Bitcoin’s relatively short lifespan and excitement about new technologies. Over longer periods of time, the average annual returns of digital currencies can change significantly.

For example, even a small rise in Bitcoin over the next few years could have a negative impact on the rapid rise we have seen over the past five years. Even if the asset is performing exceptionally well.

However, this is not the case with SPX. This is because a more traditional approach and reliable track record shows more stable ebbs and flows of performance. This means that a bull market could mean much more to investors and the economy as a whole.

When analyzed over longer time periods, these factors further exaggerate Bitcoin’s performance relative to the S&P 500.

Finally, this 10-year chart highlights these significant differences. Over the past decade, Bitcoin has surged more than 5,400%.

Meanwhile, the S&P 500 is up “only” 127% over the same period.

What role does market capitalization play?

Another factor to consider is that Bitcoin’s total market cap, or total market value, is much lower than the S&P 500.

At the time of writing this report, Bitcoin’s market capitalization was just over $1 trillion. In comparison, the S&P 500 value More than $42 trillion.

Remember that market capitalization is not an ideal way to measure the value of a digital currency. Market capitalization has traditionally been used to value a company by multiplying its stock price by the number of shares outstanding.

We know that around 19 million BTC was produced, but we don’t know how much was lost as there are many stories of investors storing key data on hard drives that they threw away. Therefore, market capitalization may not be a one-to-one comparison of Bitcoin and SPX.

Bitcoin is like a stock. The S&P 500 is like a portfolio

Simply put, investing in Bitcoin is like investing in stocks. When you purchase a coin, you own it. These are assets that can be purchased. Your potential wealth is tied to those assets.

Investing your money in the S&P 500 means spreading your investment potential across 500 companies, providing much greater diversity and stability.

Investing money in a single stock at the beginning of a bull market can produce somewhat promising returns. On the other hand, if you choose wrong, you could lose all your money.

Our Investment Approach

It is common knowledge among investors that cryptocurrencies, especially Bitcoin, are more volatile compared to TradFi. But if you’re willing to incorporate that volatility into your portfolio, there’s a lot of potential for huge returns.

Different approaches can provide some stability while still yielding great returns in the cryptocurrency space. Our Blockchain Believer Portfolio I’ve had very good results with this approach.

Our portfolio combines stocks, bonds and less than 10% quality crypto assets. Since its launch in 2018, it has consistently outperformed traditional investors who do not include cryptocurrencies in their portfolios.

By investing in stocks, bonds, and cryptocurrencies, blockchain believers can gain access to fast-growing markets while leveling out volatility. We use the following assignment:

• About 65% is invested in overall stock market index funds (e.g. Vanguard VTSMX).
• About 30% in overall bond market index funds (e.g. Vanguard VBTLX);
• Up to 10% for high quality crypto assets such as BTC and/or ETH.

There is no need to purchase and hold Bitcoin directly. You can also purchase Bitcoin ETFs within your brokerage account. Click here to read our guide to the best Bitcoin ETFs.

Investor Implications

• Bitcoin and the S&P 500 are different investment types that offer different investment strategies and are influenced by a variety of factors.
• Historically, Bitcoin has delivered a higher compound annual growth rate (CAGR) than the S&P 500. However, Bitcoin’s performance is based on a shorter, more volatile history and can change significantly over long periods of time.
• Because Bitcoin’s market capitalization is much smaller than the S&P 500, investing in Bitcoin is similar to investing in a single stock, while investing in the S&P 500 allows for diversification across 500 companies.

Comparing the S&P 500 to Bitcoin is not one-to-one. However, it gives you plenty of opportunity to think about how these different markets work and how you can leverage them in your portfolio.

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