Investors looking for sound strategies often use market indexes like the S&P 500. By following such index funds (either through investments with individual S&P 500 companies or through reputable index funds), investors can tie their wealth potential to the market’s health.
Perhaps unsurprising, crypto enthusiasts have wondered about a comparable market or fund in the DeFi space. The short answer is that there isn’t anything quite like it yet (although the potential approval of crypto spot ETFs could change this dramatically). However, it’s still possible to compare the S&P 500 against a popular cryptocurrency–namely, bitcoin.
In this article, we look at the historical performance of both the S&P 500 and bitcoin to help inform readers which has performed better over the past few years.
Bitcoin and the S&P 500: A Historical Comparison
You can compare the S&P 500 (or SPX) and bitcoin, but it’s important to note that they represent very different types of investments and are influenced by different factors.
- SPX is the index of 500 select, publicly traded companies. It is a market-capitalization index, meaning that companies with higher market value will often disproportionately impact the index. It’s often used to track the performance of other indexes or mutual funds following SPX.
- Bitcoin is a cryptocurrency. Unlike SPX, you can invest directly into crypto by purchasing the coin and owning it. As such, it is a tradable asset, whereas SPX isn’t.
What is the S&P 500?
The S&P 500, or Standard & Poor’s 500, is a stock market index that measures the stock performance of 500 large companies listed on stock exchanges in the United States. It is one of the most commonly followed equity indices and is considered a bellwether for the U.S. economy. The index includes companies from all sectors of the economy, providing a broad snapshot of the overall market’s health.
Historically, this index has produced an average annualized total return of 9.9% since 1928. Since the last bull market began in March 2009, the S&P 500 has climbed over 430%, rising from approximately 735 to 4,166 as of November 2023. This sharp climb has caused the benchmark group of stocks to experience a compound annual growth rate (CAGR) of over 12% (or 14% with dividends) over the last 14 years.
What Is Bitcoin?
Bitcoin is a digital currency running off of a decentralized blockchain system utilizing Proof-of-Work (PoW) verification. As the first cryptocurrency, it is also the most valuable, albeit volatile (especially compared to traditional stocks and bonds).
Bitcoin has been around for far less time (launched to the public in 2009), but during that time, it has generated massive returns.
While price data for bitcoin’s early days are scarce, we know that the currency’s price has risen to a peak of $69,000 in November 2021, according to data from TradingView. This represents an increase of 138,000,000% from the earliest recorded prices.
Here is a graphical representation of bitcoin’s historical price fluctuations between 2010 and October 2023.
Since attaining that price peak, bitcoin’s price has pulled back significantly, causing the digital currency to decline to roughly $34,000 as of this writing.
In the past 5 years, bitcoin has experienced a CAGR of over 40%, according to an analysis conducted by Bitcoin Market Journal. That means over this time frame, its annual return has been nearly 5x that of the S&P 500.
As we’ve demonstrated in the previous charts, over the past five years, we’ve seen roughly 50% growth of the S&P 500, whereas we’ve seen a 500% growth in bitcoin in that same period.
Keep in mind, however, that these impressive figures rely on bitcoin’s relatively short lifespan, coupled with a lot of excitement over a new technology. Over a more extended period, the digital currency’s average annual return could change drastically.
For example, even modest gains in bitcoin over the next few years could negatively impact the meteoric gains we’ve seen over the last five years… even though the asset is performing exceptionally well.
Not so with SPX, however, as its more traditional approach and reliable history show a more stable ebb and flow of performance. This means that when a bull run hits, it might mean much more for investors and the economy as a whole.
When analyzed over a longer timeframe, the outperformance of bitcoin vs. the S&P 500 is more exaggerated due to these factors.
Finally, these ten-year charts emphasize this considerable difference. During the last decade, bitcoin has surged over 5,400%.
Meanwhile, the S&P 500 has ‘only’ gained 127% for the same period.
What Role Does Market Capitalization Play?
Another factor to consider is that bitcoin’s total market capitalization – in other words, its total market value – is far less than that of the S&P 500.
At the time of this report, bitcoin’s market capitalization is roughly $670 billion. The S&P 500, in contrast, is worth more than $35 trillion.
Remember that market capitalization is a less-than-ideal way to measure the value of a digital currency. Market capitalization has traditionally been used to value companies by multiplying the share price by the number of shares outstanding.
We do know 19,530,206 BTC have been produced… but it is impossible to know precisely how many of those bitcoins have been lost over the last 10 years, as there are many stories of investors who stored their key data on hard drives they threw away. As such, the market cap may not be a one-to-one comparison between bitcoin and SPX.
Bitcoins is Like a Stock; S&P 500 is Like a Portfolio
Simply put, investing in bitcoin is like investing in a stock–when you buy the coin, you own it. It is an asset you can purchase. Your wealth potential is tied to that asset.
Putting your money into the S&P 500, however, means spreading investment potential across 500 companies, giving far broader diversification and stability.
By putting your money into a single stock in its beginning phase of a bull run, you could generate some rather promising returns. On the other hand, if you choose wrong, you might lose all your money.
Combine Crypto and TradFi with the Blockchain Believer’s Portfolio
It’s common knowledge among investors that crypto, and bitcoin specifically, is more volatile than its TradFi counterparts. But there’s a ton of potential for massive returns if you’re willing to integrate that volatility into your portfolio.
A diversified approach could provide some stability while benefiting from the great returns in the crypto space. Bitcoin Market Journal’s Blockchain Believers portfolio is an excellent choice for those with a moderate risk profile.
Our portfolio combines crypto and stocks. Starting with its launch in 2018, it has consistently come out ahead of traditional investors, by allocating a small percentage to crypto, and the rest in traditional stocks and bonds.
By investing in a mix of stocks, bonds, and crypto, Blockchain Believers have access to a fast-growing market while leveling out volatility. We use the following allocation:
- About 65% invested in a total stock market index fund (like Vanguard VTSMX);
- About 30% into a total bond market index fund (like Vanguard VBTLX);
- Up to 10% in quality crypto assets like BTC and/or ETH.
Comparing the S&P 500 against bitcoin isn’t apples-to-apples. But, it does provide plenty of opportunity to think about how these different markets work and how you can leverage them in your portfolio.
If you are open to purchasing a speculative asset that has generated strong returns, bitcoin may be your investment.
However, if you are looking for something that is more proven, with less volatility, the S&P 500 index may be a better bet.
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