A Tale of Risk Assets: Bitcoin, Bitcoin Proxies vs S&P 500

You do your investment portfolio a disservice by not reading this

If you’ve already been investing your hard-earned money for a few years, you’re already far ahead of most. For this, you should be proud.

In the last two years, many mid/large-cap equities (aka stocks) and other risk-assets (including real estate and Bitcoin) are at or have surpassed all-time highs. You know this if you’ve been invested in them. Assuming you started investing 2+ years ago, if your current portfolio value isn’t worth more than when you’ve started, you’ve done messed up and should re-evaluate what assets you’ve been selecting.

If you fall into this cohort it’s likely that you’ve done 1 of the following in the image below (or all of them). Take some time to self-reflect.

I have LITERALLY done all six of these thinking I was smart and savvy 8-10 years ago during the early days of my investing journey. I thought I could make money quickly. But, I found out the hard way that this is NOT how you make money, and the market has a way to humble you. All I had to do was just hold quality names in non-cyclical industries and do nothing. But, more on that another time.

If you’ve employed any of those “strategies” in your journey, don’t feel discouraged. Most people fall victim to any of the 6 scenarios and think that’s what investing IS, a losing endeavor, and NEVER take the time to actually learn. These are the same people who don’t invest because they’ve lost money and think it’s a “scam” but bet $50 or $100 on their favorite sports team to win or on a 3-team parlay between an NBA match, 2nd division soccer, and playoff hockey. It’s ludicrous.

Hopefully, you’re not one of those people.

Now, onto the point of this post.

Deciding what to invest in might be scary. Most people should be investing into ETFs and index funds. You’ll be VERY happy with your results years from now and they don’t require too much activity on your part. A “sit and forget” type approach which provides you an average 8-9% return (using the S&P 500) which will one day award you a nice nest egg for retirement.

But, we are also in 2024 and the world of economics and investing has undergone a DRAMATIC shift. We’ve had massive monetary expansion since Covid, the likes never seen in history.

AND an absurd spike in US government spending which has served as a catalyst for the inflation we have seen to-date. To put things in perspective, US government spending (inflation-adjusted) since 2020 now exceeds the COMBINED spending of: World War I, World War II, and the 1970 to 1990 time period.

As a result of this, the real returns that you might think you have from your investments are actually ALOT less.

So, what’s the answer?

Invest in assets that can generate alpha, aka outperform, over and above traditional indexes like the S&P 500.

In this image, I illustrate the % returns since Jan 2023 for assets like Bitcoin, proxies like MicroStrategy and bitcoin miners compared to the traditional indexes like the S&P 500 and Nasdaq.

Bitcoin & Bitcoin Proxies (since Jan 2023)

• MSTR 0.00%↑ +1061%

• CLSK 0.00%↑ +778%

• COIN 0.00%↑ +633%

• IREN 0.00%↑ +558%

• Bitcoin +308%

Traditional Indexes (since Jan 2023)

• SPY 0.00%↑ (S&P 500) +39%

• QQQ 0.00%↑ +73%

While the traditional indexes have objectively done REALLY well and people SHOULD 100% be investing in them, there should ALWAYS be some room to maximize a portfolio’s risk-adjusted returns.

Just look at the difference and net positive impact of the wonders an allocation to Bitcoin or proxies would do to your investment portfolio, even if just a small allocation %.