Bitcoin increased by 111% in 2024. The S&P 500, one of the safest indexes, grew by 24% in 2024. Is investing in Bitcoin more daring? There are various perspectives on this assertion. Bitcoin surged by 111% in 2024, outpacing the S&P 500’s 24% growth. While Bitcoin’s volatility can make it seem more daring, its recent performance suggests substantial returns, though opinions vary on whether it’s a safer or riskier option compared to traditional assets.
Performance Comparison
A stock market index that tracks 500 of the top-performing businesses on the US stock market is called the S&P 500. These businesses typically account for about ⅘ of the market capitalization of US enterprises. The S&P 500 index’s core companies include Nvidia, Apple, Microsoft, Meta Platforms, Berkshire Hathaway, and other behemoths. These companies’ steadily increasing values have given the index a reputation as a secure place to invest. Some of these companies’ individual performance outperforms the index as a whole. For example, Berkshire Hathaway’s annual rate was higher than the S&P 500’s previous year.
Bitcoin saw spectacular ups and sharp downs; its greatest growth rate was 1,336% in 2017, and its biggest decline was 73% in 2018. Between 2013 and 2023, Bitcoin’s annualized total return was 74.1%, whereas the S&P 500’s was 13.3%. Each dollar invested in Bitcoin in 2013 brought 100 times more money in 2023 than each dollar invested in the S&P 500, since the total return for the same period is 25,480% for Bitcoin and 250% for the S&P 500.
Risk Reward and Inflation
Riskier is synonymous with adventure. To be safe, BlackRock suggests investing no more than 2% of your money in Bitcoin. It’s interesting to note that some people believe Bitcoin to be a safer investment than the S&P 500. They point to inflation as the element that many supporters of the S&P 500 overlook. The S&P 500 wasn’t safe at all in the 1970s because inflation was outpacing returns. The 2000s saw yet another era. However, long-term investments in the S&P 500 proved secure in past times. The relationship between risk, reward, and inflation is crucial for investment strategies.
Higher inflation erodes purchasing power, often prompting investors to seek assets that offer greater returns to offset this risk. Balancing risk and reward in such environments requires careful analysis of inflation trends and asset performance. Both the positive and negative annual return periods for Bitcoin are shorter. Bitcoin’s metabolism makes it a better option than the S&P 500 safety because, in five years, investors may enjoy returns that significantly exceed inflation rates, and at these times, the chart pits may be skipped over.
Bitcoin’s Value-to-Risk
Critics have pointed out that another drawback of the S&P 500 index is that, rather than investing in a profitable company, you purchase 500 companies, some of which may depress the index’s performance. This explains why the returns of some companies are Bitcoin vs S&P 500 higher than those of the index. Simultaneously, the expansion of the money supply explains the growth of some of these businesses, according to research by mathematicians Aubain Nzokem and Daniel Maposa.
Bitcoin has a value-to-risk ratio that is four times higher than the S&P 500 and a nearly 40% higher incidence of generating daily returns. Bitcoin’s value-to-risk ratio is critical for investors, reflecting the potential returns relative to the associated volatility. While Bitcoin has demonstrated substantial gains, its price is highly sensitive to market sentiment, regulatory news, and macroeconomic shifts. Understanding this ratio helps investors balance reward potential with the inherent risks of a decentralized, speculative asset class.
Summary
In 2024, Bitcoin increased by 111%, significantly outpacing the S&P 500’s 24% growth. This performance raises the question: Is investing in Bitcoin more daring? While Bitcoin’s volatility may make it seem riskier, its long-term returns—74.1% annualized between 2013 and 2023—have outpaced the S&P 500’s 13.3% returns over the same period. Some investors argue that Bitcoin vs S&P 500 Bitcoin offers better protection against inflation, which has historically eroded purchasing power and hurt traditional assets like the S&P 500 during inflationary periods. Others highlight Bitcoin’s higher risk due to its price volatility.
