Key Takeaways:
- The S&P 500 is a stock market index that tracks the performance of 500 large US corporations, while bitcoin is the first and most valuable cryptocurrency.
- Since 2019, bitcoin has delivered nearly 5x more annual returns than the S&P 500 on average (53.3% versus 10.97% CAGR).
- Bitcoin is like a volatile stock with a high risk/reward potential. The S&P 500 is more like a diversified portfolio for greater stability, but with lower rewards.
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 investing 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. You’ll learn why our strategy has created so much alpha, and perhaps get converted 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. In the aftermath of the 2008 financial crisis, the S&P 500 bottomed out at 676 on March 9. This was followed by an extended bull run between 2009 and 2019.
In 2019, the average monthly close price of the index was $2,607. By the beginning of 2024, it was at $3,960, a change of 51.9%. When we include dividends, the 5-year change is around 100%, or a CAGR of 14.94% (10.97% when adjusted for inflation).
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.
Detailed price data for bitcoin’s early days are scarce. The first known transaction of the coin in October 2009 placed its value at around $0.0009. In March 2024, Bitcoin reached an all-time high of $73,844, an increase of 8.2 billion percent from the earliest recorded price.
That peak in early 2024 was followed by a market correction of nearly 20%, causing the digital currency to decline below $60,000 before bouncing back 7% to $63,000 by the end of June 2024.
The closing price of bitcoin in March was $4,136 in 2019 and $71,333 in 2024, an increase of 1725%. This puts the CAGR of bitcoin over the past five years at around 53.3%. That means bitcoin’s annual return has been more than 5x that of the S&P 500 over the same period.
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 100% growth of the S&P 500 (including dividends), whereas we’ve seen a 1725% 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 15,500%.
Meanwhile, the S&P 500 has “only” gained 117% for the same period (216% if we include the dividends).
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 over $1.23 trillion. The S&P 500, in contrast, is worth more than $45 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 25% 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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Data Sources:
S&P 500 Bottom price 2009:
S&P 500 (^GSPC) Stock Historical Prices & Data - Yahoo Finance
S&P 500 between 2019 and 2024.
S&P 500 Returns since 2019 (officialdata.org)
Bitcoin earliest transaction details:
Bitcoin 2024 price tracking:
Bitcoin March 2019 price:
Bitcoin Price March, 2019 | StatMuse Money
Bitcoin market cap:
Bitcoin price today, BTC to USD live price, marketcap and chart | CoinMarketCap
S&P 500 Market cap:
