Bitcoin vs. S&P 500: Risk-Adjusted Returns Compared

The full picture, side by side

Why "risk-adjusted" changes the story

Bitcoin's total return looks like a blowout — roughly 6x the S&P's over the same stretch. But that return didn't come for free: Bitcoin's annualized volatility was about 3.7xthe S&P's, and its worst peak-to-trough drawdown was roughly 3x as deep.

Dividing each asset's annualized return by its annualized volatility gives a rough return-per-unit-of-risk figure — not a full Sharpe ratio (that would subtract a risk-free rate first), but enough to make the comparison honest. On that basis, the S&P 500's 0.81 is actually slightly ahead of Bitcoin's 0.63 — the raw return gap mostly reflects Bitcoin taking on much more risk, not converting that risk into a better risk-adjusted outcome.

What the drawdown number actually means

A 73% drawdown means an account would have needed to nearly quadruple from its low just to get back to even — and living through that decline in real time, without the benefit of already knowing the recovery happens, is where most investors abandon a position. The S&P's 25% drawdown is still a real bear market, but it's a fundamentally different experience to hold through. This is the practical case for treating Bitcoin as a smaller position sized for its own volatility rather than a like-for-like swap with an equity allocation — see How Much Bitcoin Should I Own?

Limitations

Volatility and max drawdown here are computed from month-end closing prices, which smooths over some intra-month swings — true daily-basis figures for both assets are somewhat higher than shown. The window also covers only one full market cycle including a single major crash (COVID, March 2020) — a longer sample spanning multiple rate cycles and recessions could shift both assets' risk profile in either direction. Past volatility and drawdown are not a ceiling on future ones for either asset.

Frequently asked questions

Has Bitcoin outperformed the S&P 500?

On raw return, by a wide margin. Since January 2020 Bitcoin returned +788% against the S&P 500's +132%, or +39.8% annualized versus +13.8%. On a risk-adjusted basis the picture reverses: Bitcoin's return divided by its volatility is 0.63 against the S&P's 0.81.

How much more volatile is Bitcoin than the S&P 500?

About 3.7 times. Bitcoin's annualized volatility over the period was 62.9% against the S&P 500's 17.0%. Its worst peak-to-trough drawdown was roughly three times as deep — -73.0% versus -24.8%.

What does risk-adjusted return mean?

It measures return per unit of volatility rather than return alone, which is what lets you compare assets of very different riskiness. It matters because a headline return figure says nothing about what you had to sit through to earn it — and the gap between Bitcoin and the S&P 500 is far smaller once volatility is accounted for.

Does Bitcoin have a better Sharpe ratio than the S&P 500?

No. On the return-to-volatility measure over this period Bitcoin scores 0.63 and the S&P 500 scores 0.81 — despite Bitcoin returning roughly six times as much in absolute terms. Higher return did not translate into more efficient return.

What does a 73% drawdown actually mean for an investor?

It means an investment would have lost nearly three-quarters of its peak value, and would then need to roughly quadruple just to return to break-even. The practical question is not whether the long-run return justifies it, but whether you would have held through it rather than selling near the bottom.