How Rich Would You Be If You Had Invested US$1,000 In Cryptocurrencies A Year Ago?

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How Rich Would You Be If You Had Invested US$1,000 In Cryptocurrencies A Year Ago?

Cryptocurrency prices have skyrocketed over the past year. Here we reveal how much you would have gained if you had invested US$1,000 in the top five digital currencies 12 months ago.

Published on 6 November 2017

The price of bitcoin and other cryptocurrencies has been rising rapidly in recent times. The origin of “Bitcoin Pizza Day,” which is celebrated on 22 May every year, probably best illustrates how fast bitcoin – the world’s most popular cryptocurrency – has appreciated in value.

A little over seven years ago when bitcoin had been around for about a year, programmer Laszlo Hanyecz bought two Papa John’s pizzas by paying in bitcoin. The bill was US$25. Using the exchange rate prevalent at that time, Hanyecz had to pay 10,000 bitcoin – that’s worth about US$72 million today.

Although the prices of bitcoin and other cryptocurrencies have skyrocketed, the cryptocurrency market has a dark side too. MWR InfoSecurity, a firm that specialises in cybersecurity, points out that virtual currencies are allowing criminals greater freedom to operate. Some cybercriminals have even demanded ransom in cryptocurrencies. A recent poll commissioned by Citrix, an American software company, found that British IT managers were stockpiling bitcoin to pay ransom demands in case their computer systems were hacked.

But despite the fact that some criminals are taking advantage of the anonymity that virtual currencies offer, bitcoin, ripple, and many of others are gaining widespread acceptance. Japan, for example, has legalised bitcoin exchanges and brought them under money laundering/know-your-customer rules. About a third of worldwide trade in ethereum, the second-most popular virtual currency, takes place in Korea – the country is home to three of the world’s top five ethereum exchanges.

Cryptocurrencies are also increasingly being used for commonplace transactions. A few months ago, a London property developer announced that tenants could pay their deposits in bitcoin, and said that it would also accept rent payments in the cryptocurrency.

However, many people (including some Wall Street titans) think that soaring virtual currency valuations are a bubble that will eventually burst. Larry Fink – the CEO of the world’s largest asset management firm, BlackRock – recently called bitcoin an “index of money laundering.” Jamie Dimon – the CEO of JPMorgan, the biggest US bank – has also slammed bitcoin, labeling it a “fraud” and predicting that it will “blow up.”

Most observers seem to agree, though, that the blockchain technology on which virtual currencies are based holds great promise, and has the potential to disrupt many well-established industries including financial services.

Are cryptocurrency prices rising because the technology that they are based on is so valuable? Or are prices shooting up due to speculators looking to make quick profits? Whatever the reason, early investors have made tremendous returns. The gains that cryptocurrencies have made in the last year have beaten other asset classes by a wide margin.

Here we examine how the top five (in terms of market capitalisation) cryptocurrencies have fared in the last 12 months, to see how rich you would be if you had invested US$1,000 in these digital currencies a year ago.

Bitcoin

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Bitcoin seems unstoppable. There has been a ninefold increase in prices over the last year and the rise in valuations show no signs of slowing down.

In September this year, Chinese authorities banned initial coin offerings (ICOs), which raise funds for new cryptocurrency ventures, also said that all trading in bitcoin would be halted within a few weeks. Although bitcoin prices, which were over US$4,000 at that time, initially plunged by over a thousand dollars, they resumed their climb soon afterwards. Subsequently, they have more than doubled.

Where are prices headed? Wences Casares, who is on PayPal’s board of directors and is also the CEO of bitcoin wallet Xapo, is predicting that bitcoin will climb to US$1 million in ten years. Snapchat investor Jeremy Liew says that the price will be at US$500,000 by 2030.

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Ethereum

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The cryptocurrency with the second largest following is ether, which runs on the ethereum blockchain. In many ways, ether is similar to bitcoin. Ethereum’s decentralised payment network permits the sending of anonymous payments – there is no need to involve banks or other financial institutions.

However, ethereum has several distinct advantages over bitcoin. It is much faster than bitcoin, making it a better option for carrying out transactions. Additionally, its network allows new computer applications to be built on it and to run on it.

Ethereum was launched in the middle of 2015. Until February 2017, ether’s price hovered around US$10. But from March onwards, ether valuations started rising rapidly, and by 13 June, ether was at US$398. But it has trended downwards since then, even touching US$171 in mid-July.

One major advantage that ethereum has is that its protocol has been used by companies like Samsung, Microsoft, and IBM. But it is not very clear whether this should really impact the cryptocurrency’s market price.

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Ripple

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This cryptocurrency provides proof that blockchain technology is going mainstream. Ripple is already being used or is being considered by several major banks – including Crédit Agricole, Santander, UBS, and dLocal of Uruguay – as a mechanism to transfer payments across borders . Ripple’s CEO, Brad Garlinghouse, says that the company has already signed up more than 100 customers.

To transfer payments to other countries, banks currently use the Swift network, an international remittance can take up to three days. Using Ripple’s blockchain technology, the transfer can be made in seconds.

Garlinghouse predicts that many more banks will adopt ripple. Currently, financial institutions hold more than US$5 trillion in “nostro” accounts, which are bank accounts held abroad to facilitate international payments. Adopting ripple would do away with the need to block this money.

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Litecoin

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Litecoin was trading at less than US$10 in early April this year. Since then, it has climbed to its current level. However, the cryptocurrency, which its founder, Charlie Lee, says is “silver” to bitcoin’s “gold”, has displayed a high degree of volatility. On 1 September 2017, it was trading at US$86.04. An investor who bought at this price would be staring at a loss of almost 40% of the capital that had been invested.

Why has litecoin suffered such a large drop in value in the last two months? The cryptocurrency is dominated by Chinese investors, and when the Chinese authorities clamped down on ICOs in September, it had an immediate effect on litecoin prices.

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Dash

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Although dash has made a 29-fold gain in the last 12 months, it has lost a significant part of its value in the last two. The cryptocurrency’s price peaked at US$399.85 on 26 August.

Formerly called darkcoin, this virtual currency is similar to bitcoin, but is reportedly more secure. Dash technology is designed to ensure that it is difficult to link the buyer and the seller, and the anonymity it offers is one of its main features.

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The bottom line

Should you invest in cryptocurrencies? Given the returns that they have provided in the last year, the answer should be a resounding “yes.” But it is undoubtedly true that a large part of the gains that virtual currencies have made is due to “hot money.” If the cryptocurrency world receives a major shock, prices could fall as quickly as they have risen.

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