Bitcoin is hardly the only cryptocurrency investment
The meteoric rise of bitcoin has lifted the fortunes of other cryptocurrencies along with companies that are developing the underlying technology, called blockchain, that supports them. Many analysts, however, caution that the hype around these alternatives may not be justified.
Prices for ethereum, the No. 2 cryptocurrency in terms of market capitalization behind bitcoin, have been on a rocketship ride of their own. They began the year valued at $8.13 and recently changed hands at $783.03, an increase of 9,530 percent. The price of Ripple's XRP has also dramatically improved in 2017. In January, the cryptocurrency was worth 0.00642 of a penny. Now, it's valued at 77 cents, a jump of more than 11,492 percent.
Prices for litecoin are up more than 7,600 percent since the start of the year, surging from $4.35 to $332. Dash recently changed hands for $1,129, a nearly 10-fold increase from its $11.20 valuation on Jan. 1. Monero has spiked in 2017 from $14.25 to $359, a jump of nearly 2,500 percent.
Skeptics have argued that the cryptocurrency market is a bubble that's bound to pop, and even fans of bitcoin point out that its long-term success is no sure thing because market forces could eventually push prices downward. Futures contracts for bitcoin are now available on two exchanges, which may stabilize prices over the long run.
"Whether the market ends up deciding on bitcoin as the dominant cryptocurrency or whether a number of cryptocurrencies end up gaining widespread acceptance, other cryptocurrencies won't displace bitcoin unless they either do something different than bitcoin does. Or unless they can do what bitcoin does but better, faster, cheaper, more secure, etc," said CoinIRA CEO Trevor Gerszt in a statement.
CoinMarketCap has listings for more than 1,000 different types of cryptocurrency, many of which are fly-by-night operations of dubious legality that investors should avoid, according to Ronnie Moas, an analyst with Standpoint Research, who stresses the need for diversification.
"I don't advise anyone to put all of their crypto into bitcoin," he said. "There's no guarantee that bitcoin will stay at the top of the mountain. They may stay at the top of the mountain like Amazon and Google and Apple have, but they may not. People need to hedge themselves against someone knocking bitcoin out."
Using bitcoin to make a purchase can be surprisingly difficult since it isn't widely accepted and operates on a network whose capacity is constrained. A dispute over how to scale the bitcoin network led to the creation of a second bitcoin token called bitcoin cash. Transaction fees for bitcoin are also an issue.
"Increasingly bitcoin is being viewed by the market as a storer of value similar to gold," said Ryan Taylor, CEO of Dash Core, a software development firm allied with the Dash cryptocurrency. "I don't believe that Bitcoin Cash has solved the scalability issue" that has plagued bitcoin.
Ethereum isn't aspiring to be a digital currency as much as a "smart contract network." Litecoin, which is positioning itself as "silver" to bitcoin's gold, will experience the same issues as bitcoin as it tries to expand its network, Taylor said.
Manero advertises itself as being "secure, private and untraceable," which has attracted the interest of criminals. In a statement released earlier this year, the FBI expressed concerns about manero's enhanced security functions. Wired magazine dubbed it "The Drug Dealer's Cryptocurrency of Choice."
Dash is touting its lower transaction cost and speed as an alternative to bitcoin. It was the first non-bitcoin cryptocurrency to achieve a price topping $1,000. Ripple promotes XRP's ability to bridge the gap between so-called fiat currencies such as the dollar and the euro in high-value deals. According to Ripple, it can settle transactions more quickly than any other cryptocurrency.
Investors interested in cryptocurrencies but leery about entering the volatile market have several options. First, they can buy shares in companies that analysts expect to benefit from the bitcoin boom, such as payments processor Square (SQ). They also can invest in companies developing the underlying blockchain technology that powers bitcoin.
Tech startup LongFin (LFIN) recently surged more than than 2,400 percent in less than a week on investor excitement about its acquisition of a provider of blockchain technology to make small loans. Experts, however, are raising red flags about the hype over blockchain even though it has attracted the attention of Fortune 500 companies including Boeing (BA).
"Blockchain could very well be more important in the long term than just blockchain-based cryptocurrencies, but again it will be dependent on blockchain developers to demonstrate that their projects bring something to the table that conventional approaches can't," CoinIRA's Gerszt said. "Just because something is blockchain-based doesn't automatically make it worthwhile."