Crypto vs S&P 500 returns revealed: A step-by-step guide to maximizing long-term returns using a crypto index fund approach.

Satoshi's Index
6 min readMar 15, 2022

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How much does investing $100/month into crypto return over time? How does this compare to investing into the most popular stocks across the S&P 500? Can it really impact your savings? In this post we’ll look at what happens when you invested $100/month from January 2018 (beginning of the last crypto winter) to February 2022 (month 2 of the current crypto bear run) using an index fund approach.

First, the DCA basics.

Dollar-Cost Average (DCA) is a legacy investment strategy where you make relatively small, planned purchases of an asset at specified intervals. This makes DCA strategies great at reducing timing risk, which is the likelihood you’ll invest all your money into a coin right before its price falls. Many investors DCA invest into the S&P 500 through their 401K retirement plans. However, the best DCA strategy is the one that you actually remember to execute over a long period of time. Once you establish a regular investing schedule, you can begin optimizing your strategy to deliver higher gains by minimizing fees, buying the right coins, and automating it all to create a truly “set-it-and-forget-it” strategy.

What coins do I buy?

Many investors execute a simple DCA strategy with Bitcoin and Ethereum. These coins should continue to rise over time, but by limiting your buying strategy to these coins you are missing out on big gains from lesser known, up-and-coming coins. The best potential for gains as well as reduced risk is a basket of popular rising coins. By monitoring popularity and trading volume, you can diversify your investments into separate coins to spread risk and harness upside.

How do I diversify my coin selection to maximize returns?

We need a method for consistently picking the most popular coins that are likely to gain value over time. One readily available metric we can use to identify the most popular coins is Trading Volume. Trading Volume can help an investor identify momentum; if trading volume increases, prices generally move in the same direction. Let’s look at historical returns if we started investing $100/month (only $1200 a year!) during the last great bear market. This $100 is evenly split among the top 10 coins (stable coins excluded) by trading volume from the previous month. These 10 coins will change monthly to form a popularity index that we reference every month to initiate our buy. We will track from January 2018 to February 2022 using Binance API data.

2018 — February 2022 DCA ROI

Choosing to DCA invest in the top 10 coins by trading volume saw a 551% return to date, nearly 4x that of the S&P 500. The S&P 500 returned a 139% ROI [2], and bitcoin returned a 448% ROI [1] during the same period.Investing in coins based on trading volume allows us to ride popularity trends. It also increases the number of coins we hold as hedges when the current top coins are dethroned in favor of newer coins. Note that you are sacrificing price stability in a bear market with big upside in a bull market with not only this crypto index strategy, but all crypto buying strategies.

Is 10 coins the optimal amount of coins to create an index?

The above stats are from the same strategy — investing $100/month starting in January 2018. Increasing/decreasing the number of coins slightly lowered ROI, but not enough to create significantly less gains compared to the S&P 500.

How can I automate this strategy?

Manually checking the top traded coins on CoinMarketCap.com then executing trades yourself is one option. But, ideally this strategy should be automated so we can set-it-and-forget-it as it requires regular buys executed over a longer period of time. Customizable trading bots like 3commas can execute this strategy but you will need to write all the logic yourself and opt into a higher tier monthly plan to buy multiple coins at once. This can get expensive if you’re planning to run this strategy for years. On the traditional brokerage side, index funds like BITW exist but they don’t follow the same investing strategy. They are also accompanied by high fees and you won’t own the underlying coins.

Satoshi’s Index

We weren’t satisfied with any of the current automation options, so we started building one in November 2021. In February 2022, Satoshi’s Index launched using the strategy discussed above. Users mint an NFT to gain unlimited access. This crypto investment automation tool buys the top 10 coins based on trading volume on weekly or monthly intervals. The tool connects to your favorite exchange (Binance and Coinbase supported at launch) using API connectors. The tool never holds custody of coins, and only trades on the user’s behalf using the strict criteria mentioned in the post above. Please consider checking us out and join our discord if you found this strategy interesting! We love talking about different investing strategies, especially those geared toward long-term gains.

Screenshot of Satoshi’s Index Investing Platform

Limitations

  • Historic returns never imply future returns. A crystal ball does not exist.
  • This analysis comes with its own limitations. The data is from a single exchange. Binance’s API was used because executing a DCA strategy over multiple exchanges is unnecessary and a headache to keep track of for most investors.
  • Because data from a single exchange (Binance) was used, returns will differ if you conduct the same analysis using data from a different exchange. I could have used aggregated exchange data from Coingecko to conduct this analysis, but then actually activating this strategy would be difficult because I’d be hopping around between multiple exchanges to trade.

In Summary/ TLDR…

The best dollar-cost averaging strategy is one that is consistently executed over a long period of time — whether that be simply investing in BTC or the index strategy I laid out that nearly doubles returns in a bull market. Time in the market beats timing the market. DCA is a great hedge against timing risk. Purchasing the top 10 coins based on trading volume data from the past month is a great way to identify current favorites and future winners without spending hours on research. Automating this solution can be a challenge, so we’ve done the heavy lifting for you. Head over to our website → https://satoshisindex.com to mint the Satoshi’s Index NFT which serves as your license to unlock access to the automation tool. For additional instructions on how to mint the NFT as well as log into the tools UI, visit our youtube channel → https://youtu.be/MrPZfUymiRg. Lastly, you can connect with us on Discord where we have a growing community of crypto enthusiasts actively using the tool to diversify their portfolios. Pop in and say hello!

References

[1] Exported API data from the python script can be found here. Coin monthly gains can be verified through trading desk by selecting one month intervals on Binance for a selected coin paired with USDT (ie BTC.USDT)

[2] S&P 500 returns

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Satoshi's Index

Satoshi’s Index offers crypto investment automation tools. Instantly launch a (Dollar-Cost Average) strategy on your favorite exchange. Minting Feb 2022