A year ago bitcoin was trading at US$628. Today a bitcoin is worth around US$6,021 – that’s a nine-fold return in a year.
Ethereum, another major digital currency, has done even better. Just 12 months ago, an ether token was available for US$11.75. A year later, its value has ballooned by a factor of around 26 to US$293.49.
Why are cryptocurrency prices rising so fast? Unfortunately, nobody really has a clear answer. One explanation that is doing the rounds is that digital currencies may serve as an alternative to fiat currencies. The total amount of money in the US is US$13.5 trillion. This figure includes cash, deposits, money market securities, and mutual funds. The current market cap of cryptocurrencies is only a small fraction of this amount, indicating that there is still a lot of scope for further price appreciation.
But not everyone is convinced that cryptocurrencies can replace real money. In fact, many believe that these currencies have highly inflated values and that they may not be around for much longer.
One prominent critic of the most established cryptocurrency, bitcoin, is JPMorgan Chase chief executive officer Jamie Dimon, who recently called bitcoin “a fraud”, adding that “It’s just not a real thing, eventually it will be closed.”
Jamie Dimon is not the only one who thinks that digital currencies are a bubble waiting to burst. Robert Shiller, an American economist who won the Nobel Prize in 2013, thinks that Bitcoin is “a fad” that will vanish soon.
But meanwhile, ICOs remain very popular and the market values of existing digital currencies continue to climb to new heights.
Here we take a look at the world’s five largest cryptocurrencies in terms of market cap: