S&P 500 or Cryptocurrency: Just How Big is Bitcoin's Price Explosion?

  S&P 500 or Cryptocurrency: Just How Big is Bitcoin's Price Explosion?

 While bitcoin is down several hundred dollars since hitting its all time high of $4,483.55 earlier this morning, the cryptocurrency is still on an absolute tear this year.Bitcoin's ascent viewed over a longer time horizon is impressive.  On a year-over-year basis, bitcoin has risen about 600 percent. Its price has risen over 150 percent in the last one hundred days. Six months ago, on Valentine's day 2017, bitcoin was trading just above the $1,000 mark – so its price, even with the recent drop, has more than quadrupled in the last 6 months.Gains at those levels sound massive – but just how big are they? Compared to investments in other asset classes, how well is bitcoin faring? And, as this afternoon's price declines allude to, are the downside risks understood? One way to try to flesh out answers is to compare stock market returns with the returns on bitcoin.  

 How big are the gains? 

 A fair place to begin measuring traditional stock market returns is the S&P 500 Index, which professional investors typically use as a benchmark to track their investments.As a baseline way of thinking about the rise in the price of bitcoin consider this: Over the last 90 years, the average annual rate of return on the S&P 500 index has been just 9.8 percent. 

 If we compare bitcoin's performance this year to the average return of the S&P 500, it's immediately clear bitcoin's moonshot rise has beaten the average rate of return on the S&P 500 by a stratospheric 6,000 percent.For a slightly different proxy of price movement, let's take a look at how long it took the S&P 500 to double in value to its current level. At press time, the S&P 500 Index is trading around 2,466. Cutting that number in half, we get 1,233.The last time the S&P 500 traded below that level was August of 2010. So it took the S&P 500 almost seven years to double – thirty times longer than it took bitcoin to double in value. Bitcoin's performance is also quite impressive when analyzing it against equities by sector. For instance, the top three equities sectors by performance over the last year have been Financial, Technology and Industrials.For the sake of argument, let's just say you were able to divine that these three sectors were the ones to invest in. The rate of return in S&P Sector Tracker Spyder ETFs, which serve as a proxy for the underlying stocks over the last 12 months, have been 29.5 percent for Financials, 23  percent for Technology, and 17.1 percent for Industrials.