Over the past 8 months, cryptocurrencies like bitcoin and ethereum have outpaced more traditional investment areas by huge margins. Bitcoin, still the largest cryptocurrency in terms of market capitalization, was up nearly 400% year-to-date through the last day of August. Ethereum, the second largest cryptocurrency as far as market capitalization, has gained a whopping 4,737% over the same time period. Other leading digital currencies have also made similarly outlandish gains over the same relatively short period. All told, according to a report by the Motley Fool, the cryptocurrency industry has seen its aggregate market cap grow by an astonishing 810% over the course of the year so far.
Money Being Poured into the Cryptocurrency SPace
Individual digital currencies have grown over the past months, with some superstar currencies (like ethereum) outpacing others with otherwise stellar growth rates. However, perhaps more important to note than the success of any individual currency is the fact that the cryptocurrency space in general has seen a huge new pool of investment built up over the same time. Since January 1, the aggregate market cap of all existing cryptocurrencies has climbed from about $17.7 billion to a massive $161 billion as of August 29. Prior to the sudden drop across the industry by about 20% in the first days of September, the aggregate industry market cap may have reached as high as $180 billion.
Bitcoin, which remains the leader of the industry (at least for the time being), has taken the credit for about half of those gains in market cap this year, alongside its recent spin-off, bitcoin cash.
Blockchain Technology and Bubbles
On one hand, the promise of blockchain technology, which undergirds all existing cryptocurrencies and has new applications in the broader world all the time, may have enticed investors into reallocating their assets. The decentralized digital ledger system allows for transactions to be recorded in newer, faster, and more secure ways, and even mainstream businesses from the pre-cryptocurrency days are exploring the ways that blockchain could be integrated into older models.
Beyond that, there’s reason to believe that many investors have been drawn to cryptocurrencies because they are a way of bypassing traditional currencies which are linked with a central bank. The decentralized digital currency space is one in which a lot of investors who may have otherwise been uncomfortable with the financial world can find a home.
At the same time, though, as momentum for the cryptocurrency world has carried it to unforeseen heights in the past several months, there are a large number of investors and analysts who wonder about whether the cryptocurrency world is a bubble that is waiting to pop. Considering that cryptocurrencies tend to be highly volatile, each time there is a market correction it’s likely that a number of cautious investors get a bit more skittish.