Among stock market industries, things like marijuana, the Internet of Things, surgically assisted robotic systems, cancer immunotherapies, and electric vehicles are all the rage. Yet you could add up the gains in all of these industries combined, and you probably wouldn't even come close to the returns from cryptocurrencies since 2017 began.

Through Aug. 26, 2017, the aggregate market cap of cryptocurrencies had ballooned by 810% year to date, from $17.7 billion to $161 billion. It's worth noting that this $161 billion figure was before giants such as bitcoin, which comprises nearly half of the digital currency market cap, neared an all-time high of $5,000 this past weekend. A number of digital currencies have returned for investors in just a little over eight months what the broad-based S&P 500 has taken multiple decades to do.

A person holding a gold-colored physical ethereum coin in their fingers.

Image source: Getty Images.

How the largest digital currencies have performed this year

So which of the largest cryptocurrencies has been the top performer in 2017? Let's take a look. Following are the 10 largest cryptocurrencies in order of market cap, followed by their respective year-to-date percentage gains through Sept. 2, 2017, rounded to the nearest whole number. 

  1. Bitcoin: 375%
  2. Ethereum: 4,279%
  3. Bitcoin cash: 39% (only began trading on Jul. 23, 2017)
  4. Ripple: 3,415%
  5. Litecoin: 1,725%
  6. NEM: 8,662%
  7. Dash: 3,024%
  8. IOTA: 18% (data since Jun. 13, 2017)
  9. Monero: 806%
  10. Ethereum classic: 1,324%

You could have thrown a dart at practically any point in 2017, and at any of the largest cryptocurrencies, and you probably would have made a substantial amount of money. Ethereum, the second-largest cryptocurrency by market cap, has seen its value rise by nearly 4,300% so far this year, while NEM, with a current market cap of $2.7 billion, is the top-performer among the largest digital currencies, with a better than 8,600% return.

Why NEM? Some analysts have suggested that its popularity in Japan is a big reason behind its gains. NEM was initially developed by Makoto Takemiya, who has been heavily involved in some prominent blockchain projects. He was also a key figure behind the decision in Japan to allow bitcoin to become a legal form of tender. These ties have some believing NEM's blockchain and coins could be quite popular.

Physical coins coming out of a tablet, implying the growth of digital currencies.

Image source: Getty Images.

Why cryptocurrencies are soaring three- and four-digit percentages in a matter of months

So, what's behind these monstrous moves higher, as a whole? The most fundamentally sound catalyst is the expectation that blockchain, which is the digital and decentralized ledger that underlies most of these cryptocurrencies, could become the future of transactions in the financial industry, as well as throughout the energy and retail industries. Blockchain allows for transaction data to be safely and securely stored without the fear of tampering, making it an ideal cloud-like platform for businesses looking to keep workers in the fold, so to speak.

The reason we've witnessed such an incredible surge in bitcoin over the past month and a half, and ethereum since the year began, is probably because of their underlying blockchain technology. Some pundits have suggested that ethereum has the superior blockchain, and the fact that more than 150 organizations have joined the Enterprise Ethereum Alliance to test a version of ethereum's blockchain on a small scale, suggests this opinion could be valid.  Meanwhile, bitcoin, which recently spun-off bitcoin cash, implemented the SegWit2X update designed to increase capacity, lower transaction fees, and speed up transaction times, all by taking some of its data off of its traditional blockchain. 

Weakness in the U.S. dollar could also be fueling buying. The dollar has hit one-year and multi-year lows against a host of major currencies, which is great news for exports, but generally poor news for U.S consumers looking to buy overseas goods and investors. Usually, investors will seek the safe haven of gold when the dollar declines, since it's a finite resource. However, since bitcoin and a handful of other cryptocurrencies also have protocol-based mining limits, they, too, are viewed as finite resources. In other words, digital currencies are acting as safe-havens for a falling dollar.

A scale comparing gold to another item.

Image source: Getty Images.

We also can't overlook the power of momentum and a lack of institutional investors. Traditional institutions have mostly avoided cryptocurrencies, leaving their valuations to be determined by investors who are seemingly more influenced by emotions than by fundamentals. With gains of 4,000% and 8,000%, digital currencies have had little issue attracting new money.

Caveat emptor

However, time and again we've seen the rapid appreciation in an asset or industry eventually end in burst dreams, and pocketbooks. Whether it's genome decoding or 3D printing, investor expectations often far exceed the reality of up-and-coming technologies and industries. Chances are that cryptocurrencies will be no different.

Perhaps the biggest issue is that it's impossible to fundamentally value what blockchain is going to be worth to enterprises, or for that matter, which blockchain is going to be best suited for their needs. To date, only pilot programs and small-scale blockchain tests have been run by larger companies.

Furthermore, we've also seen an instance recently in which six global banks joined forces to issue their own blockchain-backed cryptocurrency. In other words, the barrier to entry isn't particularly high among digital currencies, and at this point there are no fundamental guarantees that blockchain is indeed the future of transaction processing.

The legitimacy of cryptocurrencies is also called into question. Considering that they aren't traded on a central exchange, it creates an exceptional amount of volatility, as well as hurts the thesis that these mined coins have value.

A person holding a pin and popping a bubble with a dollar sign inside.

Image source: Getty Images.

And speaking of value, there's a clear bifurcation between logic and emotion when it comes to investing in cryptocurrencies. Take Grayscale's Bitcoin Investment Trust (NASDAQOTH:GBTC) as a perfect example. This ETF was hammered this past Friday, when noted short-seller Andrew Left of Citron Research suggested it was exceptionally overvalued. Grayscale's Bitcoin Trust prospectus info shows it owns 172,721 bitcoin as of Aug. 31, 2017. At $4,578 per coin, that works out to a net asset value (NAV) of $790.7 million. However, even after tumbling more than 20% on Friday, the Bitcoin Investment Trust still sports a NAV of nearly $1.5 billion. That's about an 88% premium for an ETF that does nothing but hang onto bitcoin. It makes no sense, and neither does the recent run-up in cryptocurrencies.

I have but two words for those who are considering an investment in digital currencies: caveat emptor.

Sean Williams has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.