anticipating potential returns of Bitcoin versus equity investments in 2024
In 2024, Bitcoin shone bright in the investment scene, outperforming traditional assets like bonds, gold, real estate, and the overall equity market. But how did it stack up against individual stocks, a concern for stock pickers and those wanting to categorize Bitcoin within significant technological shifts in the economy?
Bitcoin returned an impressive 114% in 2024. The return and volatility were both notably higher than other asset classes, but it fell short when compared to Palantir (PLTR) which delivered a jaw-dropping 353% return, albeit with slightly higher volatility. MicroStrategy (MSTR) came in a close second, finishing with a return of 338%, but at a much higher volatility. MicroStrategy would have easily surpassed PLTR in November, with a YTD return of 497%, but lost significant value in the last six weeks of the year due to aggressive Bitcoin buying and stock dilution.
Even tech giants like Nvidia (NVDA) furnished higher returns and risk. NVDA offered a return of 187% in 2024. The major tech companies (Apple, Microsoft, Amazon, and Meta) all provided lower returns and risks compared to Bitcoin. Bitcoin generally occupied the capital market line for risk and return, with MicroStrategy on one end and government bonds (GOVT) on the other. PLTR was an outlier, but so were other companies like Tesla, Coinbase, and Marathon, which offered lower returns and higher risks. The BlackRock Bitcoin ETF (IBIT) held roughly the same return as Bitcoin, but with higher volatility.
As we broaden our scope to the S&P 500, we sample companies above a $10 billion market cap. Companies like Nvidia and Palantir provided higher returns and risks, while others, such as Disney and Nike, delivered lower returns and risks. Companies like Tesla and Micron Technology provided greater risk but lower returns.
One company within the S&P 500 surpassed Bitcoin's performance in 2024, offering lower risk and higher return. However, identifying this hidden gem among 500 companies is challenging. This finding highlights Bitcoin's standing as an asset class, which should be compared to other asset classes, not just individual stocks.
Now, let's briefly explore some insights from enrichment data.
MicroStrategy's investment in Bitcoin led to improved risk-adjusted returns. The company's Sharpe ratio, a measure of risk-adjusted returns, improved from a negative value before Bitcoin acquisitions to a positive value of 0.998 after. Palantir also demonstrated improved risk-adjusted returns after its significant investment in Bitcoin, with a Sharpe ratio of 0.728.
These insights reveal that Bitcoin, when considered as an asset class, has its place in the investment world, and its risk and return should be compared against other asset classes, not just other individual stocks.
In analyzing the graph data, it's clear that Bitcoin's returns and volatility were significantly higher than traditional assets like stocks and bonds in 2024. The volatility of Bitcoin was also higher than that of equities like Palantir (PLTR) and MicroStrategy (MSTR), which outperformed Bitcoin in terms of returns.
When comparing Bitcoin to individual stocks, even tech giants like Nvidia (NVDA) offered higher returns and risks. However, Bitcoin generally occupied a position in the capital market line for risk and return, with MicroStrategy on one end and government bonds on the other.
Interestingly, some companies within the S&P 500, like some hidden gems, surpassed Bitcoin's performance in 2024, offering lower risk and higher returns. This finding emphasizes the importance of comparing Bitcoin as an asset class to other asset classes, not just individual stocks.
Moreover, looking at enrichment data, MicroStrategy and Palantir both demonstrated improved risk-adjusted returns after investing in Bitcoin, suggesting that Bitcoin has a place in the investment world.
Furthermore, it's essential to note that while Bitcoin's volatility is higher than some stocks, it still provides an alternative investment opportunity for investors seeking higher returns with the potential for significant upside.
