Bitcoin remains an exceptional asset to be classified since it has garnered attention because of its high risk and return on investment. This article focuses on Bitcoin's ROI and how it stands against more conventional investment styles regarding return, risk, and fluctuation of BTC. The ROI analysis over the past decade demonstrates Bitcoin's specific means of growing and fluctuating compared to stocks, bonds, and commodities.
The advancement in adoption and popularity in the last decade shows that, on average, Bitcoin has delivered better returns per year than traditional investments. For example, Bitcoin has given investors an annualized return of 671% since 2013, far higher than other traditional types of assets. 2023 Bitcoin rose by 156% compared with the S&P 500's 25% and the 5% return on U.S. bonds.
High-yielding corporate bonds and commodities, too, lagged behind Bitcoin with respective returns of 12% and -2%. However, Bitcoin's coefficients of variation for the same period have remained notably higher than those of traditional asset classes, with annualized volatility often over 200% in its early years of trading and between 40% and 70% in the more recent period.
Bitcoin's high volatility creates an extra risk that repels traditional investors, but it has provided better risk-adjusted returns compared to most assets in the past. Thus, measures like the Sortino Ratio, which considers the downside risk of return, have enhanced Bitcoin's performance over the years, meaning that these great returns have been achieved at the correct risk.
Data from Fidelity International shows that Bitcoin's 5-year risk-adjusted returns have exceeded traditional assets, reflecting investors' compensation for assuming its inherent volatility.
Bitcoin's drawdowns, or peak-to-trough declines, have also been steeper than most traditional assets over the last five years, with larger maximum drawdowns than equities and bonds. However, its realized monthly returns often exhibit a positive skew, driven by periodic surges yield considerable gains. Unlike individual stocks in the S&P 500, Bitcoin's 360-day realized volatility has fallen below certain high-profile securities, suggesting gradual stability in the asset's performance over time.
Bitcoin's appeal to institutional investors has grown due to improved market access and regulatory developments. Custodial solutions, such as self-custody and third-party full custody, have provided investors with additional avenues for securely holding Bitcoin. Institutional-grade custody options have improved security by addressing technology-related risks, a major consideration given that over $1.7 billion of assets were reportedly stolen in 2023 despite a 54% decrease in platform-related losses from the previous year.
Increased acceptance of exchange-traded products (ETPs) for Bitcoin has paved the way for easier, regulated exposure to the asset. Unlike self-custody, ETPs simplify entry for investors by integrating full-custody solutions managed by specialized custodians. The recent approval of Bitcoin spot ETFs in the U.S. is expected to further institutional involvement, potentially reducing volatility as market depth and liquidity expand.