This year definitely went to the bulls, with all three major U.S. stock indexes flying to dozens of new all-time highs. From cloud computing to marijuana stocks, most industries delivered healthy gains for investors.
But when the calendar finally turns on 2017, we'll likely be kneeling in reverence to the amazing gains delivered by cryptocurrencies. From the beginning of year through Dec. 11, the aggregate market cap of all cryptocurrencies has grown from $17.7 billion to $458 billion, a gain of nearly 2,500%. By comparison, the stock market typically returns about 7% annually for investors, inclusive of dividend reinvestment and adjusted for inflation.
There's bitcoin and everyone else
The kingpin among all virtual currencies continues to be bitcoin, the world's most popular and first tradable cryptocurrency. As of Dec. 11, 63% of the aforementioned $458 billion global market cap for virtual currencies belonged to bitcoin. And although it's up by "only" 1,600% this year, which trails the aggregate incline in market cap noted above, I doubt that its investors are crying the blues.
When it comes to bitcoin, a confluence of factors have led its seemingly unstoppable charge higher. First, there's the potential for blockchain technology. Blockchain is the digital and decentralized ledger that underlies most virtual currencies and logs transactions without the need for a third-party intermediary, like a bank. Blockchain offers the potential to process transactions considerably more quickly (especially cross-border transactions) and more cheaply since there's no third-party involvement.
Bitcoin investors are also enamored with its potential as a payment platform. In addition to the handful of brand-name merchants snagged in 2014, a number of smaller merchants have latched on in recent years and begun accepting digital currencies like bitcoin, helping to validate it.
Speaking of validation, news-driven events and regulation have helped, as well. Japan announced earlier this year that it' would accept bitcoin as legal tender, while CBOE Global Markets became the first platform to launch bitcoin futures trading last week.
Five bitcoin stocks that have exploded higher in 2017
But it's not just cryptocurrency investors who have benefited from the bitcoin craze. Five stocks have at least tripled as a result of it this year alone, with one rising by more than 19,000% since the year began!
Overstock.com: Up 214%
Perhaps the most in-the-spotlight beneficiary of bitcoin is online retailer Overstock.com (BYON 6.30%), which has more than tripled through Dec. 11, year to date. Overstock has been a pioneer of cryptocurrency acceptance and currently allows customers to pay with a half-dozen different virtual currencies. What's more, rather than translating its cryptocurrencies back into cash, it retains a small percentage in a portfolio, which has appreciated in value significantly this year.
Investors also appear to be really excited about the Medici t0 blockchain, which is a blockchain-based securities lending system designed to go head-to-head with Wall Street (but at a cheaper operating cost). This blockchain, which could lead to an enormous initial coin offering, is being developed by an Overstock subsidiary. As a well-known face of the cryptocurrency craze, Overstock has benefited greatly.
Xunlei Limited: Up 310%
A lesser-known bitcoin stock that's performed even better than Overstock is China-based Xunlei (XNET -0.52%), which has more than quadrupled since the summer. On Oct. 12, the company introduced its Wanke coin mining cryptocurrency project, which is similar to that of bitcoin. Since then, its share price has been off to the races. It's been especially popular considering that China's government cracked down on domestic cryptocurrency exchanges, since Xunlei gives investors in the region an opportunity to get in on the blockchain craze without directly buying bitcoin.
Of course, investors should exercise caution with Xunlei, at least according to its management team. In a recent interview, Dong Xue, the company's vice president of marketing, said, "We did get attention from investors confident on Xunlei's future, but we hope Xunlei's investors flock to us because of the future of 'shared computing' and their trust in our new management team, rather than for speculation."
Bitcoin Investment Trust: Up 1,167%
The Bitcoin Investment Trust (GBTC 5.06%), operated by Grayscale, owns a relatively fixed number of bitcoin from month to month, making its net asset value pretty easy to calculate. At the end of November, it owned approximately 171,861.48 bitcoin. As of Dec. 11, that would be worth about $2.89 billion. In other words, this equity has directly benefited from the appreciation in bitcoin, and it has given investors who are gun-shy about investing via a cryptocurrency exchange a means to buy into bitcoin.
On the other hand, the premium to access this added liquidity has been almost laughable. The Bitcoin Investment Trust's market cap of $3.16 billion is about 10% higher than its net asset value (NAV), and it has regularly been 25% to 125% higher than its NAV throughout much of the year. This makes the Bitcoin Investment Trust potentially even riskier than owning bitcoin itself.
First Bitcoin Capital Corp.: Up 1,624%
Working our way up the ladder, small-cap over-the-counter (OTC) company First Bitcoin Capital Corp. (BITCF -65.00%) surged over 1,600% this year. The company officially changed its name in November 2016, and it's pretty much been tacking on gains ever since. Investors appear to be excited about its development of blockchain technology, the launch of new cryptocurrencies, and its work in developing new cryptocurrency exchanges.
While the company generated $681,105 in net profit through the first nine months of the year, the volume activity on the virtual currencies it has brought to market is minimal at best. What's more, with more than 300 million shares outstanding, it's going to take more than a nominal profit to turn the heads of fundamentally oriented investors. But perhaps the biggest concern here, other than a Securities and Exchange Commission halt this past summer, is that the company has changed its name, business focus, or country of incorporation five times in the past 12 years. This is a company known for chasing the next hot trend and not delivering, so I'd preach caution to investors with this stock.
Bitcoin Services Co.: Up 19,275%
However, the creme de la creme among bitcoin stocks is Bitcoin Services (BTSC), an OTC-listed company whose shares are up nearly 19,300% since the year began. Why the ridiculous gains, you ask? Primarily it's been the company's focus on mining bitcoin, Dash, and Monero, as well as its development of blockchain software and digital wallets to store cryptocurrencies. Mining, which proofs transactions on a blockchain network, allows Bitcoin Services to earn rewards that are paid in cryptocurrency and/or transaction fees.
But like many of the other OTC-listed companies riding bitcoin's coattails, there are major red flags here. The company only launched its website and created a cryptocurrency wallet subsidiary (Crypto Capital Corp.) four months ago. In fact, up until March 2016, this was a medical devices company known as Tulip BioMed. Worse yet, it hasn't filed any financial information with the Securities and Exchange Commission since 2004 and directs any investor relations requests to a "contact us" page. Yikes! I know a bitcoin stock I would suggest avoiding like the plague!