Bitcoin is the Hurdle Rate

Bitcoin is the hurdle rate. That is, every investment and every dollar spent has to be compared to the rate of return if that dollar would have gone to bitcoin. Otherwise, you are doing your portfolio a disservice.

Traditionally, the “market” is the S&P 500 index and has been the standard for where investment dollars go. Any other opportunity is compared to this metric because, in this view, any other opportunity provides an opportunity cost if it fails to outperform the S&P 500. I have discussed this idea before and showed that only 4 hedge funds (of the sample viewed) outperformed the S&P 500 return of 23.3% in 2024. Although in the same timeframe, bitcoin returned over 120%. This comparison will quickly become apples to oranges the longer bitcoin exists and the longer bitcoin continues to outperform the S&P 500 and really, everything else.

I firmly believe two things about bitcoin, and these two thoughts will continue to form the basis of the rest of this perspective:

1. Everything trends towards zero against bitcoin in a long enough time horizon.

2. Once again, bitcoin is the hurdle rate for every financial decision.

Let’s put some numbers around these claims to help provide more backing to these perspectives.

First, according to Truflation, the US dollar has lost 28% of its purchasing power since January 2020. As someone who graduated from college in 2021, it is insane to me that in just over 5 years, I have lost over a quarter of my purchasing power. Purchasing power that I would greatly have appreciated not being eviscerated as I began my adult life.

This is not a new idea. In the fiat world, holding dollars as a means of saving for the future is impossible. Holding dollars for prolonged periods of time means you lose because inflation is built into this system. Therefore, people invest.

If you had invested in the S&P 500 5 years ago today, in 2020, you would be realizing nearly a 95% gain. That helps avoid the rampant loss of purchasing power you would have had if you just held dollars.

However, if you compare the chart of the S&P 500 to bitcoin in the same timeframe, you see that the S&P 500, aka THE MARKET, is down 85% compared to bitcoin.

When I discuss portfolios and the ideas of investing, I surely wouldn’t want my portfolio to remotely underperform anywhere close to 85%. Yet, if you held only the S&P 500, that is what your accounts did compared to bitcoin, regardless of the nominal value increase.

Housing is another huge market for people to store their capital. Many people purchase homes as investments for the future and simultaneously hold much of their net worth in their homes. Since 2016, the median US home has appreciated by about 50% when measured in dollar terms. However, in that same period, the median home has dropped in price 99% when measured in bitcoin. A 664 bitcoin home in 2016 would cost 6 bitcoin today. Holding bitcoin means that your life and everything around you gets cheaper.

If you hold and use dollars as your metric:

• Your coffee gets more expensive

• Your groceries get more expensive

• Everything gets more expensive as a result of inflation.

If you hold and use bitcoin as your metric:

• Everything around you gets cheaper.

Many people’s holdup with bitcoin is that they believe it is too risky. However, all of the stats above showcase that if you hold bitcoin with a long-term horizon, you are better off. Even the short-term metric of 2024 showed that you would have had close to a 6x return if you held bitcoin compared to the S&P 500.

Bitcoin has appreciated close to 80% in the last year, 1,096% in the last 5 years, and 38,122% in the last decade. The compound annual growth rate for the last 5 years is over 60%. How do traditional investors beat this? Yet, many think this is too risky to consider holding.

Looking at the Sharpe ratio provides an even cleaner picture of the true “risk” of bitcoin. The Sharpe ratio is used to evaluate how much excess return you are receiving for the “extra risk” you are taking compared to a risk-free investment.

More comparisons with longer timeframes are shown below:

Nothing else compares to bitcoin. Every dollar not put into bitcoin is a dollar not put into the best-performing asset in the world. People will continue to switch their perspectives and come to terms with the fact that bitcoin is the hurdle rate.

Stack SATs.

The views and opinions expressed here are for entertainment purposes only and should, in no way, be interpreted as financial or investment advice. Always conduct your own research when making an investment or trading decision, as each such move involves risk. The team members behind Triana are not financial advisors and do not claim to be qualified to convey information or advice that a registered financial advisor would convey to clients as guidance. Nothing contained in this e-mail/article constitutes, or shall be construed as, an offering of financial instruments, investment advice, or recommendations of an investment strategy. If you are seeking financial advice, find a professional who is right for you.