Investors looking for easy strategies often use market indexes like the S&P 500. By buying a single index fund that tracks 500 top companies, investors can tie their wealth to the market’s overall health.
Indeed, our investing approach is to hold most of your investments in a simple index fund like the S&P 500 – or even the entire stock market! – with just a small percentage allocated to bitcoin. (Read more about our approach here.)
There are still plenty of traditional investors who laugh at this strategy, avoiding bitcoin altogether. The question they should be asking: how does bitcoin stack up against the S&P 500?
In this article, we look at the historical performance of both the S&P 500 and bitcoin, to help show why our strategy has performed so well, and convert a few skeptics to the new way of investing.
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 about 10% since 1928. Since the last bull market began in March 2009, the S&P 500 has climbed over 530%, rising from approximately 735 to 5,026 as of February 2024. This sharp climb has caused the benchmark group of stocks to experience a compound annual growth rate (CAGR) of over 14% (or 16% with dividends) over the last 14 years.
What Is Bitcoin?
Bitcoin is a digital currency running on blockchain technology. As the first cryptocurrency, it is also the most valuable. However, it is far more volatile than traditional stocks and bonds.
Bitcoin has been around for far less time than the stock market (launched to the public in 2009), but during that time, it has generated massive returns for early investors.
While price data for bitcoin’s early days are scarce, the price rose to a peak of $69,000 in November 2021. This represents an increase of 138,000,000% from the earliest recorded prices.
Since attaining that price peak, bitcoin’s price has pulled back significantly, causing the digital currency to decline below $17,000 before bouncing back to the current level of $51,000.
In the past five years, bitcoin has experienced a CAGR of about 68%, according to an analysis conducted by Bitcoin Market Journal. That means bitcoin’s annual return has been nearly 5x that of the S&P 500 over the past five years.
Using History to Assess the S&P 500 Against Bitcoin
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.
However, remember that these impressive figures rely on bitcoin’s relatively short lifespan and excitement over 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 just over $1 trillion. The S&P 500, in contrast, is worth more than $42 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 know about 19 million BTC have been produced, but it is impossible to know how many have been lost, 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.
Bitcoin 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 means spreading investment potential across 500 companies, giving far broader diversification and stability.
You could generate some rather promising returns by putting your money into a single stock in its beginning phase of a bull run. On the other hand, if you choose wrong, you might lose all your money.
Our Investing Approach
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 outsized 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. Our Blockchain Believers portfolio has performed exceptionally well with this approach.
Our portfolio combines stocks, bonds, and no more than 10% quality crypto assets. Starting with its launch in 2018, it has consistently come out ahead of traditional investors, who do not incorporate crypto into their portfolio:
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.
Note that you don’t have to buy and hold bitcoin directly. You can also buy a bitcoin ETF from within your brokerage account: click here to read our guide on Best Bitcoin ETFs.
Investor Takeaway
- Bitcoin and the S&P 500 are different investment types catering to different investment strategies and are influenced by varying factors.
- Historically, bitcoin has offered a higher compound annual growth rate (CAGR) than the S&P 500. However, bitcoin's performance is based on a shorter, more volatile history, which could change significantly over an extended period.
- Bitcoin's market capitalization is much smaller than the S&P 500's, making investing in bitcoin similar to investing in a single stock, while investing in the S&P 500 offers diversification across 500 companies.
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.
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