The S&P 500 Could Be a Better Long-Term Bet Than Bitcoin

The last time I wrote about Bitcoin (CCC:BTC-USD) in late May 2021, it traded around $37,500. That’s a 16% gain over the past 7.5 months.

A Bitcoin (BTC) coin surrounded by gold.
Source: Shutterstock

While good, it’s not the kind of return investors have become accustomed to with BTC-USD. For example, if you had bought the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) last May, you would have generated a 13% return with far less risk and volatility. 

It got me thinking: Given 277 S&P 500 stocks delivered equal or better performance over the past year — Jan. 12, 2021, to Jan. 12, 2022 — Bitcoin no longer appears to be the great appreciator.

One could argue that the index is a superior, risk-adjusted investment over the next decade. Here’s why.

Bitcoin Led the Way Over Past Decade

The March 2021 headline in CoinTelegraph said it all: BTC was best-performing asset of past decade by 1,000%. The proof comes from Charlie Bilello, arguably the biggest chart freak on Twitter.  

While Bilello’s evidence isn’t nearly as pretty as Ben Carlson’s over at A Wealth of Common Sense, it demonstrates that Bitcoin ran laps around all other asset classes between March 13, 2011, and March 13, 2021. It had an annualized return of 230.6% over the, more than 11x better than the Invesco NASDAQ 100 ETF (NASDAQ:QQQ), which gained 20% per annum. 

How did the S&P 500 do? Bilello didn’t list the index. However, he did have large-cap stocks in third place at 14.0%. That’s pretty close. In Carlson’s Jan. 9 update, large caps were first over the past decade at 16.4%. 

Only REITs (2014 and 2015) and large caps (2019 and 2020) repeated years as the top asset class in Carlson’s chart. Bilello’s was BTC-USD, which delivered three different streaks over the past decade — 2011 to 2013, 2015 to 2017, and 2019 through March 13, 2021 — so it earned plenty of bragging rights in the 2010s.

The one thing these 10-year charts show is that a particular asset class might lead the way in any given year, but ultimately, someone else almost always takes the baton from them in the following year. 

I suspect that when we look back at the decade that was, sometime in 2032, we’ll see that Bitcoin, or more likely some other up-and-coming cryptocurrency, had its periods of outperformance. 

But given I’m a big believer in reversion to the mean, I suspect that Bitcoin’s 100%+ annual returns are a thing of the past. In 2021, it had a 60% return. That’s its smallest positive return since 2015. 

It led the way. Now, it’s time to get out of the way.

Who Will Lead Over the Next Decade

The amazing thing about the kind of chart Bilello and Carlson produce is that there’s often a surprise winner. I haven’t a clue what asset class will lead the way over the next decade, but I know that large caps will always be in the hunt. 

Large caps account for 82% of SPY’s 506 holdings based on market capitalization. Looking at Carlson’s chart, large caps were in the top three asset classes in seven out of the past 10 years. In Bilello’s, large caps only made the top three in 2019. However, his chart had 17 asset classes versus 11 for Carlson’s.

So, as the annual returns of Bitcoin continue to shrink relative to these other asset classes, the world’s largest crypto becomes less exciting as an appreciating asset and more attractive as a defensive maneuver in the same vein as gold. 

However, the International Monetary Fund (IMF) recently threw cold water on this theory.

Here’s what the IMF had to say about this investor assumption:

“The correlation of crypto assets with traditional holdings like stocks has increased significantly, which limits their perceived risk diversification benefits and raises the risk of contagion across financial markets,” wrote Tobias Adrian and Mahvash Qureshi, two high-ranking officials from the Fund’s capital markets departments. Tara Iyer, an economist who specializes in global financial stability, also contributed to the research, Politico reported. 

So, if it’s no longer appreciating at historical levels, and it’s not acting as a hedge against inflation, etc., there doesn’t appear to be any reason to hold the cryptocurrency. 

Add to the argument that Bitcoin provides no utility other than acting as an alternative currency, and the index doesn’t seem like a bad bet straight up against Bitcoin over the next decade.

The Bottom Line

In my May article about Bitcoin, I argued that increased regulations were a good thing for BTC-USD. After all, if it is to become an alternative to the U.S. dollar, it’s got to be able to withstand closer scrutiny by regulators. 

Ultimately, I believe Bitcoin will begin to look more like a digital currency and less like a long-term investment. If that happens, you can be sure its days as a big mover is over.

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.

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