Key Points
- Bitcoin’s growth in 2024 was 111%, while the S&P 500 index grew by 24%.
- Bitcoin and the S&P 500 index have different risk and return profiles, leading to different investment considerations.
In 2024, Bitcoin saw a significant increase of 111%, surpassing the 24% growth of the S&P 500, one of the most reliable indexes.
Comparing Bitcoin and the S&P 500’s Performance
The S&P 500 is an index that follows the performance of 500 of the top-performing companies in the U.S. stock market, accounting for about 80% of the U.S. companies’ market capitalization.
Companies like Nvidia, Apple, Microsoft, Meta Platforms, and Berkshire Hathaway form the backbone of the S&P 500 index. These companies have consistently grown in value, making the index a safe investment option. Berkshire Hathaway, for example, had a higher annual rate last year than the S&P 500.
Bitcoin, on the other hand, has experienced tremendous highs and severe lows, with a peak growth rate of 1,336% in 2017 and the most significant decline of 73% in 2018. From 2013 to 2023, the annualized total return for Bitcoin reached 74.1%, compared to the S&P 500’s 13.3%.
Bitcoin vs. the S&P 500
Bitcoin is a more volatile investment than the S&P 500, with higher highs and lower lows. An investment in Bitcoin in December 2017 would have required over two years to recoup the initial investment.
This volatility makes Bitcoin riskier. BlackRock suggests investing no more than 2% of your funds in Bitcoin for safety. However, some view Bitcoin as a safer investment than the S&P 500, citing inflation as a factor often overlooked by S&P 500 advocates.
Bitcoin has shorter periods of negative annual returns and shorter positive periods, making it an attractive choice over the S&P 500 for some investors.
Critics of the S&P 500 index argue that instead of investing in a successful company, you are buying into 500 companies, some of which may drag down the index’s performance. A study by mathematicians Aubain Nzokem and Daniel Maposa found that Bitcoin has a nearly 40% higher likelihood of generating daily returns than the S&P 500, with a value-to-risk ratio four times higher.
In recent times, the S&P 500 has consistently outperformed the inflation rate, fulfilling its primary role of preserving the value of money. However, it is unlikely to experience dramatic growth due to the nature of its structure.
Bitcoin, conversely, has demonstrated the ability to surge and plummet frequently. Despite being declared “dead” numerous times, it continues to reach new heights. As such, it can serve as an experimental component in a portfolio balanced by more stable investments like the S&P 500.
