Historically, the stock market has been the greatest creator of long-term wealth, and it certainly hasn't disappointed in 2017. Each of the three major U.S. indexes have logged dozens of fresh all-time record highs, with the broad-based S&P 500 up almost 300% from where it troughed during the Great Recession.
Yet in spite of these impressive gains, it's cryptocurrencies like bitcoin that have stolen the show. On Dec. 5, bitcoin touched yet another all-time high, inching ever closer to $12,000 per coin. Since the year began, bitcoin has rallied more than 1,100%, which has coerced investors to pile into the world's most popular cryptocurrency. Despite skepticism, it's shown little signs of slowing.
Image source: Getty Images.
Bitcoin's 1,100% gain in 2017, explained
Underlying bitcoin's romp higher appears to be a confluence of three factors. First, there's a lot of excitement surrounding blockchain, which is the underlying infrastructure of virtual currencies like bitcoin. Blockchain is the digital and decentralized ledger that records all transactions without the need for a financial intermediary like a bank. These open-source networks are also considered to be especially secure, cheaper than current payment service networks, and offer the possibility of quicker transaction settlement times.
Second, investors are encouraged by bitcoin's acceptance by merchants. A number of brand-name businesses began accepting bitcoin back in 2014, and its popularity with merchants has only grown as its value has increased almost exponentially. Online retailer Overstock.com (NASDAQ: OSTK) has opened its arms to a half-dozen cryptocurrencies, including bitcoin, and it's been holding onto a portion of its virtual currencies received as payment because it believes these cryptocurrencies could rise even more (thusly adding to Overstock's bottom line via investment gains).
We're also probably witnessing what the financial networks refer to "FOMO," or the fear of missing out. As bitcoin has pushed higher, no investor wants to be the one left out while their friends and family "get rich." In other words, emotions have played a big role in pushing the world's most popular digital currency through the roof.
Image source: Getty Images.
There are now two sides to each coin
But as the old saying goes: "What goes up, must come down."
It's no secret that multiple Wall Street moguls have questioned the validity of bitcoin. Long-term investing success story Warren Buffett has equated bitcoin to nothing more than putting a dollar value on a check, while JPMorgan Chase CEO Jamie Dimon has called the most popular digital currency a "fraud." Yet it's not words that have the potential to bring bitcoin down from its lofty heights. Instead, it could be the launch of bitcoin futures, which is set to occur on Dec. 10.