The year isn't over yet, but I feel it fair to say that 2017 absolutely belonged to cryptocurrencies.
The stock market, traditionally the greatest long-term creator of wealth, has nicely surpassed its historic average gain of 7% a year, inclusive of dividend reinvestment and adjusted for inflation, in 2017. By comparison, the aggregate value of all virtual currencies combined has catapulted from $17.7 billion on Dec. 31, 2016, to as high as $654 billion on Dec. 21, 2017. That represents an increase of nearly 3,600% -- a lifetime's worth of gains for some folks in less than a year's time.
Why virtual currencies have soared in 2017
The motivation behind this optimism appears to be a combination of blockchain excitement, virtual-coin acceptance, news-driven events, and emotions.
Think of blockchain as the infrastructure that underlies most virtual coins. It's a digital, distributed, and decentralized ledger responsible for logging all transactions without the need for a third party. Though the advantages of blockchain are numerous, the excitement revolves around its ability to potentially speed up transaction settlement times (especially involving cross-border payments), lower transaction fees since there's no third party, and improve security since there's no data center where information is stored and could potentially be stolen by cybercriminals.
We're also seeing a pretty steady acceptance of virtual coins as tender by merchants. A handful of brand-name merchants jumped aboard the crypto train in 2014 and began accepting bitcoin, including online home-goods retailer Overstock.com, which currently accepts six popular cryptocurrencies. As more merchants join in, the validity of cryptocurrencies as an asset class grows.
News-driven events have also pushed most virtual currencies higher. For instance, Japan announced that it would treat bitcoin as legal tender earlier this year, while both CBOE Global Markets and CME Group have begun trading bitcoin futures on their respective platforms. News like this adds validation that digital currencies like bitcoin are becoming more mainstream.
And lastly, "FOMO," as the news networks call it, or the "fear of missing out," has been behind this rally. Some investors can't bear the thought of missing out on the big gains and have blindly jumped in, whether they truly understand cryptocurrencies or not.
Move over bitcoin: Verge has run circles around you this year
But as you might imagine, bitcoin tends to get most of the glory. It's the most traded digital currency in the world by average daily dollar value, and it was the first cryptocurrency to be regularly traded. It also has the highest number of merchants who accept its coin as a form of tender, and it comprises around 44% of the aggregate cryptocurrency market cap.
However, when the year ends, it won't be bitcoin standing at the top of the pack. Though the face of the crypto craze rallied from $967 per coin to nearly $20,000 during the year, its percentage increase pales in comparison with some of its peers. One digital currency that's absolutely run circles around bitcoin this year is Verge, a little-known cryptocurrency that's burst onto the scene with a market cap that recently topped $2 billion.
Verge's coin, XVG, began the year at just $0.000019 (not even two-thousandths of a penny) and a market cap of just $246,300. On Wednesday, Dec. 20, XVG hit $0.1637 per coin, representing a market cap of $2.41 billion, and a year-to-date return of 861,479%. If you had invested just $117 in Verge's XVG at the beginning of the year, you'd be a millionaire.
What exactly is Verge, and why has it caused jaws to drop with its recent rally? Let's take a closer look.
What is Verge?
As you've probably (and correctly) surmised by now, Verge's blockchain is the reason behind its recent surge. Verge's blockchain incorporates some of the components that's made bitcoin's blockchain successful, but it makes changes that beef up privacy and anonymity, as well as capacity and transaction settlement times.
According to Verge, it uses "multiple anonymity-centric networks such as Tor and I2P. The IP addresses of the users are obfuscated and the transactions are completely untraceable." The anonymity of transactions has been a major positive for the crypto craze, which first began with libertarians cheering bitcoin as their new dream currency.
Verge's blockchain also offers quick transaction settlement times. For context, slower transaction processing times is probably the biggest complaint of bitcoin's blockchain. The use of Simple Payment Verification technology allows most transactions processed through Verge's blockchain to be completed in around five seconds.
In addition, Verge maintains a community feel since it's not a private company. The members of its community are responsible for the direction its technology and coin heads next. And make no mistake, Verge is pushing for greater adoption of its token. It's currently offering a number of secure mobile wallets, including the Tor Android Wallet, which offers mobile anonymity, says Verge.
Why is Verge skyrocketing?
Now that you've got some background on Verge, let's look at the three primary drivers of XVG of late.
First, there's growing interest in transaction anonymity. Investors have recently learned that cryptocurrency transactions aren't as anonymous as you'd think, since they're recorded (in an encrypted fashion) in a digital ledger. Recently, the Internal Revenue Service won a court ruling that required Coinbase to turn over information on 14,355 users who'd conducted more than $20,000 worth of bitcoin trades between 2013 and 2015. In those years in question, just 800 to 900 taxpayers noted capital gains from their bitcoin trades, so the tax agency appears to be targeting tax evaders with this push. Verge's blockchain offers beefed up measures to protect the identity of peer-to-peer and business-to-business transactions, which is clearly hitting home with investors.
Second, the outspoken CEO of MGT Capital Investments, John McAfee -- yes, the same John McAfee who was behind McAfee antivirus software in the 1980s and 1990s -- recently put Verge on his buy list, via a tweet:
I am inundated by people asking me for recommendations on cryptocurrencies. If you would use your heads you would figure out that the privacy coins (anonymous transactions) will have the greatest future. Coins like Monero (XMR), Verge (XVG), or Zcash (ZEC) cannot lose.— John McAfee (@officialmcafee) December 13, 2017
McAfee believes that privacy coins like Verge offer more potential than popular coins like bitcoin, sending XVG skyrocketing in the process.
The third and final price driver of late is the implementation of the Wraith protocol, which allows users to alternate between public and private ledgers on Verge's blockchain.
Of course, the big question is: Can XVG continue heading higher? To that end, I'm not so certain. While it's had plenty of positive PR of late, it's going to take more than emotions to sustain this rally in cryptocurrencies. Further, investors have a long history of overestimating how quickly new technology could be adopted, which may very well be the case with cryptocurrencies like Verge.
For the time being, I'd keep Verge on your radar, but out of your investment portfolio.