It may be hard to believe, but it’s the truth: Cryptocurrencies are considerably closer to hitting $1 trillion in total value than $100 billion in value.
When the year began, the combined market cap of all virtual currencies was just $17.7 billion, and bitcoin made up nearly 88% of that total. However, as of Dec. 20, the aggregate market cap of the better than 1,360 digital currencies had soared to $635 billion, representing a year-to-date increase of almost 3,500%, and bitcoin’s contribution was less than 50%. By comparison, the stock market historically gains about 7% a year, inclusive of dividend reinvestment and adjusted for inflation. Cryptocurrencies have simply whooped traditional equities in 2017.
The buzz behind cryptocurrencies
Why such bullishness, you ask? A number of catalysts have played a role in pushing virtual currencies higher. For example, the emergence of blockchain is creating a lot of buzz on Wall Street.
Blockchain is the digital and decentralized ledger that records all transactions without the need for a financial intermediary like a bank. Think of it as the infrastructure that underlies digital currencies like bitcoin. Blockchain has the potential to speed up transaction settlement times, reduce transaction fees, and could be considerably more secure than current databases, just to name a few advantages.
Dollar weakness has also been helpful, especially to bitcoin. A falling dollar is great news for U.S. exporters, but it’s not such positive news for investors holding cash. These investors will often seek the safety of gold as a store of value, given gold’s scarcity and use as a currency for more than 2,700 years. Yet some cryptocurrencies, like bitcoin, have protocols that limit the number of coins that can be mined. This creates the perception of scarcity, which has pushed some investors to choose bitcoin, or other cryptos, over…