Warren Buffett Loves the S&P 500 But It’s Down 88% Against Bitcoin: Is That a Fair Comparison?

Warren Buffett, the legendary investor, has been marketing the S&P 500 as one of the best long-term investments to everyday investors. His recommendation has remained the same: never speculate, put money in a broad market index and leave the rest to compounding. However, there is one piece of data that is striking and circulating in the financial circle’s creating a different picture.

The S&P 500 has dropped almost 88 per cent since 2017 in comparison to Bitcoin. This is on a relative basis of considering that the S&P 500 has been recording record highs in terms of dollars, but has horrendously performed when priced in Bitcoin. This peculiar comparison has brought up arguments within the financial community not only on the performance of assets, but on what would be a fair standard in a fast-paced economy.

The Numbers Behind the Shock

The S and P 500, a market-cap-weighted index of the 500 biggest publicly traded corporations in America is trading at all-time highs, having just broken through 5,600 points. According to most conventional statistics, investors are rejoicing a strong market. Corporate profits have been maintained, interest rates could be slightly reduced shortly and a hard landing of the U.S. economy has been avoided.

However, when you put Bitcoin as a yardstick, everything is very different. At the end of 2017, one Bitcoin cost approximately $ 20,000. Today, it hovers around $65,000. During the same time frame the S and P 500 has increased by approximately 130 percent in U.S dollar value. Nevertheless, relative to Bitcoin terminology, it has plummeted tremendously in value, implying that today it requires such a small number of Bitcoins to purchase the same index exposure as it used to a few years ago.

This to crypto enthusiasts is an indication of the declining purchasing power of the fiat currency. It is a deceptive statistic to conventional investors that warps the value of the long-term.

Buffett’s Faith in Productive Assets

Admiration of the S’P 500 by Warren Buffett have something to do with its relationship with actual businesses, businesses that create, innovate, and make money. These productive assets, in his opinion, are increasing in value over time whereas Bitcoin in his words has become notoriously known as rat poison squared.

The philosophy that Buffett has developed is constructed based on practical fundamentals: cash flow, quality of management, and competition moats. The S and P 500 is a stake in the American corporate powerhouse like Apple, Microsoft and Johnson and Johnson that further continue to increase their income bases.

On the contrary, Bitcoin to Buffett is a speculative asset. He says that it does not create anything, and its worth is solely based on what another person wants to give to it. In that sense, it is quite like comparing Bitcoin to the S&P 500, one may admire art but not as much as agriculture.

The Case for Bitcoin as a Benchmark

Nonetheless, Bitcoin advocates state that the fact that the S&P 500 is dropping so hard in Bitcoin terms is the most eloquent reason why Bitcoin-friendly assets are becoming popular. According to them, Bitcoin is a new financial standard, a hard money that is resistant to inflation, government manipulation, and manipulation of money.

It is in that regard that Bitcoin is not in competition with the S&P 500 as an investment, but rather as a unit of measurement. It is argued that the dollar is also depreciating, and that due to the scarcity, Bitcoin is a superior yardstick of actual economic power.

In this context, the decline of the S&P 500 relative to Bitcoin is not indicative of the market weakness, but rather, it denotes an indication of fiat debasement. In case Bitcoin keeps its strength as its supporters think, then all other assets, including stocks, bonds, even real estate, will seem to decrease when measured in Bitcoin.

Two Different Universes

It is perspective that is at the heart of the debate. The S&P 500 is an ownership of productive resources in a controlled marketplace economy. Bitcoin is an alternative monetary system that is not part of economy. This is misleading in the direct comparison of the two as they are governed by different principles.

The value of the S&P 500 is based on corporate, interest rate, and macroeconomic growth. Bitcoin is valued based on its adoption in the network, its scarcity, and psychological factors in the market. The one is based on the business basics; the other on technological and ideological faith.

Nevertheless, this comparison is quite strong as the mindset of investors shifts. The new generation of investors is becoming more and more convinced that Bitcoin is not a gambling dice, but that it is an actual store of value, which even in the long term will be able to sustain their purchasing power more effectively than the traditional markets.

What This Means for Investors

The lesson is not to give up on the S&P 500 and start investing in Bitcoin. Instead, it is to appreciate the fact that the financial environment is changing. The digital assets that react differently and respond to various economic triggers are reconsidering the traditional portfolios constructed based on stocks and bonds exclusively.

To Buffett, the S and P 500 is the definitive model of long-term, patient, rational investment in a portfolio of actual businesses generating actual value. To Bitcoin enthusiasts, the digital currency is the future of money and it cannot be affected by erosion of the fiat-based investments.

What would be a more fair conclusion could be the fact that the two do not have to be competitors. The S&P 500 is a symbol of the power of the old economy; Bitcoin is the prospect of the new economy. The most prudent investors may be the ones who realize — and appreciate the reasoning of both.