Bitcoin’s Risk and Return Explained in 7 Amazing Charts (That You’ve Never Seen Before)

A finance professor explains how Bitcoin has really performed relative to the stock market

Stephen Foerster

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Photo by Harrison Kugler on Unsplash

What’s bitcoin really like as a potential investment, and how does it compare with traditional investments in terms of risks and recent returns? Will bitcoin soon be part of a new cryptocurrency asset class that all investors should consider as part of their investment portfolio? We now have over six-and-a-half years of price data since mid-September 2014, when U.S. regulators approved the first derivative product involving bitcoin. So, to answer those questions, I gathered and analyzed price data on bitcoin, the S&P 500, a bond index, gold, the dollar, and the FANG growth stocks — Facebook, Amazon, Netflix, and Google, now Alphabet. (If you want to know more about the data, details are presented in an Appendix at the end of this article.)

There are lots of lenses through which to view cryptocurrencies such as bitcoin, for example: evaluating the fundamentals of bitcoin as a technology; its use as a currency, particularly with newsworthy events such as Tesla’s purchase of $1.5 billion of bitcoin and with the initial public offering of Coinbase Global, Inc., a cryptocurrency exchange; and bitcoin’s environmental impact related to the mining of new coins. These are great discussions to be had, but here I’ll simply be investigating bitcoin as a potential investment, from a historical perspective relative to other investments. I’ll share my findings in seven simple charts, each of which tells an amazing story — you can also get a copy of my spreadsheet and the charts here.

Chart #1: Bitcoin’s Incredible — and Bumpy — Rise

Unlike most charts you’ll see, I chose to use a log scale. The beauty of the log scale is that it is easy to capture the rate of increase: going from $100 to $1,000 gives you the same rate of return as going from $1,000 to $10,000. If growth is steady then we would expect to see a relatively straight-line increase from bottom-left to…

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Stephen Foerster

I’m a Finance prof, CFA, and author of In Pursuit of the Perfect Portfolio (with Andrew Lo). I write stories about investing. (I don’t give financial advice.)