The S&P 500 is volatile, but Bitcoin is napalm
Many people have made millions from Bitcoin, but it is a highly volatile investment that lost even more people large sums.
Bitcoin was invented in 2008 by Satoshi Nakamoto – an unknown person or a group of people with in-depth knowledge of cryptocurrencies.
It began use in 2009 with the main purpose of being a decentralised currency. It did not live up to its promise of becoming a widely used currency for transacting.
However, it gained popularity as a speculative asset and demand for Bitcoin increased dramatically, causing its price to increase rapidly.
Many Bitcoin investors became incredibly wealthy, with a single coin exceeding $64,000 in November of 2021.
However, its decline was as rapid as its ascent, resulting in many crypto investors and traders losing most of their money.
The reality is that Bitcoin is incredibly volatile and has had major price crashes in very short time periods.
To understand the vastness of Bitcoin’s volatility, it could be measured against the volatility of the S&P 500 since 2010.
The S&P 500 is a high-risk investment as it only consists of equity. The S&P 500 has an annualised standard deviation of its returns – a measure of volatility – equal to 17.6% for the period.
This means that, historically, there was a 17.6% spread from the mean annual return for the S&P 500 in a single standard deviation since 2010.
Over the same period, the standard deviation for Bitcoin returns was equal to 168%, the spread in returns around the mean annual returns.
Daily Investor tracked the performance of a R100 investment in Bitcoin from 2010. The investment would have grown to a whopping R22.7 million in the 12-year period.
Although the R100 investment had incredible growth, it could have easily gone in the other direction.
At its peak, the R100 investment would have been worth R67.53 million. Many investors who decided to invest at this point lost most of their money.
A year later, the R100 would have fallen from R67 million to just over R15 million – a 77% decline.
Bitcoin remains a highly speculative investment which many experts, including Warren Buffett, said will come to a bad ending.
However, many faithful cryptocurrency and Bitcoin enthusiasts believe it is the future of finance and stick to their mantra – HODL.