Throughout history, there's been no better creator of long-term wealth than the stock market. Historically, the stock market returns about 7% annually, inclusive of dividend reinvestment and adjusted for inflation. This implies that invested funds should roughly double about once a decade over the long run. Not too shabby at all.
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The cryptocurrency market just hit another all-time high
But these returns have proven almost laughably sluggish in 2017 thanks to the cryptocurrency market, which is now comprised of more than 1,360 digital tokens. According to data found at CoinMarketCap.com, the aggregate value of all virtual currencies combined briefly topped $600 billion on Dec. 17. Mind you, the combined value of all cryptocurrencies on Dec. 31, 2016, was just $17.7 billion, representing a nearly 3,300% increase through 11 1/2 months.
There are a handful of broad-based catalysts behind this incredible rally. This includes a growing number of merchants accepting virtual coins; news-driven stories, such as the acceptance of bitcoin as legal tender in Japan; emotional factors, such as the fear of missing out on big gains; and the emergence of blockchain. Blockchain is the digital, distributed, and decentralized ledger underlying digital currencies that records all transactions without the need for a financial intermediary.
As you might imagine, bitcoin also gets a lot of credit for this year's gains. It's risen from just $967 per coin to nearly $20,000, and is responsible for around 55% of the aforementioned $600 billion market cap.
But as strange as this might seem, it's actually underperformed relative to its peers. If we strip bitcoin out of the equation, the aggregate cryptocurrency market cap of every other virtual currency has risen from $2.24 billion at the beginning of the year to as much as $270 billon on Dec. 17. That's where the bulk of investing and gains has really occurred in recent months. So, rather than praising bitcoin, as we've been doing for years, let's take a moment to reflect on the real crypto heroes over the past couple of months.
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Ethereum has left most digital currencies eating its dust
First off, how about a round of applause for the year Ethereum is having. Having ended the previous year at less than $8 per Ether token, it's now up to nearly $720 per token. That's a gain of more than 8,900% in 11 1/2 months, which is more than some investors will see on their investments throughout their entire lifetime.
The buzz about Ethereum has everything to do with its blockchain technology. Whereas bitcoin appears to be squarely focused on its payment facilitation potential with merchants, the Ethereum Foundation has focused on finding partners for its blockchain technology. The Enterprise Ethereum Alliance is currently 200 organizations strong, and it includes quite a few brand-name companies.
The true differentiating factor with Ethereum has been the smart contracts tied to its blockchain. Smart contracts are added protocols that help to verify, facilitate, or enforce the negotiation of a contract. But more importantly, as pointed out by CoinDesk, they allow nonfinancial businesses the opportunity to use smart contracts to store information about an application, or perhaps provide utility to other contracts, similar to how a software library works. In other words, Ethereum's ability to transcend just focusing on the financial services industry has made it extremely popular with investors.
Ripple is banking on its blockchain
Another altcoin that's been on fire over the past couple of weeks is Ripple and its token, the XRP, which has risen by 11,000% year to date. No, there's no misplaced decimal or comma in there -- it's really up 11,000%.
Like Ethereum, the buzz surrounding Ripple primarily involves its blockchain technology, albeit with a slight twist. Whereas Ethereum is trying to be something of a jack-of-all-industries with its blockchain, Ripple is laser-focused on developing partnerships with banking institutions. Ripple has tested its blockchain with five major banks, and gained a lot of notoriety following a November announcement that American Express (NYSE: AXP) and Banco Santander (NYSE: SAN) would be testing its blockchain in select cross-border payments. Specifically, customers making noncard payments over American Express' FX International Payment network to U.K. Santander accounts will have those transactions processed through Ripple's blockchain. The belief is these transactions will settle instantly, which would be a major improvement over current cross-border banking standards.
Ripple is also planning to make considerably more use of its token than Ethereum is with Ether. The idea here is that the XRP token could serve as an intermediary in terms of exchanging currencies in cross-border transactions. Let's say you wanted to turn Japanese yen into euros -- that could, presumably, be done instantaneously.
IOTA on a roll
Continuing the theme of blockchain-based rallies, IOTA has scorched higher by more than 1,100% just since the beginning of November. It's now worked its way up to the seventh-largest market cap of all virtual currencies.
The attention here is a result of the IOTA Foundation, a German nonprofit that oversees the IOTA virtual currency, announcing the release of its Data Marketplace as a two-month demo in late November. The idea of the Data Marketplace is that it'll allow businesses to sell data in an effort to increase data sharing, as opposed to allowing that data to go to waste. In particular, IOTA's Data Marketplace demonstrates the versatility of blockchain in terms of moving beyond the financial services industry and into its broader application potential.
But wait, there's more. The IOTA blockchain is also open source and "blockless" in the sense that transactions on the network are free. This would, in theory, resolve one of the biggest drawbacks of blockchain technology (transaction fees), and also deliver on the scalability that's potentially missing with today's databases.
Truth be told, we could discuss the role that nonbitcoin cryptos have played in 2017 for a while. But these, and a few others notable players (Litecoin, NEM, Monero, Stellar, Dash, and Cardano), really deserve more credit lately than bitcoin.
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