In case you haven't noticed, cryptocurrencies are smoking-hot once again. This past weekend, the combined market cap of the more than 8,400 investable crypto tokens surpassed $1.5 trillion. That's almost double the market value of the previous cryptocurrency peak in January 2018.
That Bitcoin (BTC -2.74%) is leading the way should come as no surprise. The largest and most popular digital currency came within $500 of the $50,000 mark on Feb. 14, and accounts for $915 billion of crypto's $1.5 trillion valuation.
Bitcoin continues to gain attention for its growing levels of adoption. For instance, Tesla Motors recently bought $1.5 billion worth of Bitcoin to hold on its balance sheet, and plans to accept Bitcoin as payment in countries where it's allowed by law. Also, Mastercard announced last week that it would begin supporting select digital currencies, including Bitcoin.
The world's largest cryptocurrency is also often lauded for its scarcity. No more than 21 million Bitcoin tokens can be mined, which makes it a perceived hedge against the ever-rising U.S. monetary supply. As the true value of the U.S. dollar declines, it's believed that Bitcoin will appreciate.
Over the trailing three months, Bitcoin has nearly tripled (197%), which is a 187-percentage-point outperformance of the benchmark S&P 500. Believe it or not, this 197% gain pales in comparison to the returns a handful of other popular cryptocurrencies delivered over the past three months.
Over the trailing three months, cryptocurrency Dogecoin (DOGE 1.27%) has run circles around Bitcoin, with a return of 2,330%. As of this past weekend, it had become the 12th-largest digital token by market cap ($7.5 billion).
If you're wondering what caused Dogecoin's recent monster rally, look no further than Reddit and Twitter, where it's gathered quite the following. Retail investors on Reddit's SatoshiStreetBets chatroom have continued to pump up Dogecoin. Elon Musk has also expressed his support for the oddball cryptocurrency on a handful of occasions in recent weeks.
What's crazy is that Dogecoin was created in 2013 as a joke in a matter of hours by engineers Billy Markus and Jackson Palmer. Palmer thought to combine two of the most buzzworthy things on the internet at the time: cryptocurrency and the Doge meme featuring a Shiba Inu dog. This joke has now become a full-fledged fear-of-missing-out (FOMO) opportunity for retail investors.
Unfortunately, there doesn't appear to be anything unique about Dogecoin, other than its cult-like following. These gains probably won't prove sustainable, and FOMO investors will be crushed.
Unlike Dogecoin, there do appear to be tangible reasons behind the 766% rise in cryptocurrency Cardano (ADA -6.29%) over the past three months. In particular, three projects or events stand out.
Probably the most important catalyst of the bunch was the launch of Shelley in late July (the engineering team has interesting poetic names for each of its upgrades; the last one was dubbed Byron). Shelley is designed to increase the number of nodes that network participants run. Without getting too far into the weeds, more nodes mean more decentralization and improved security on the Cardano network. Prior to this July launch, Cardano averaged 1,500 to 2,500 daily transactions. It's now averaging more than 25,000.
Secondly, investors seem excited about the ongoing reinvestment in its blockchain project. In particular, engineers are hard at work on Goguen, which will allow users to create smart contracts -- i.e., self-executing contracts that take effect when preset conditions are met. Goguen is expected to appeal to a broader audience of users, including ones who may not have an understanding of programming.
Third, Cardano seems to be getting a lift from digital trust management company Grayscale, which recently added a Cardano Trust. While this doesn't mean that Grayscale will offer an investment tool as it has with the Grayscale Bitcoin Trust, Cardano investors are excited about that possibility.
Stellar (XLM -4.12%) has also crushed Bitcoin over the trailing three-month period. Its 588% return is triple that of the largest cryptocurrency in the world. As with Cardano, there are evidently tangible reasons behind this move (not just tweets from Elon Musk).
The most exciting aspect of Stellar is its incredible payment network speed. Whereas traditional banking networks take anywhere from a few days to a week to approve and settle a cross-border payment, Stellar can do so in a matter of seconds. The only requirement is that the Lumens (XLM) coin must be supported on that network. In other words, Stellar speeds up supply chains by making payments more efficient.
Stellar is also receiving a boost from an early January announcement that it's working closely with the Ukrainian government to create a central bank digital currency. This doesn't guarantee that the Stellar Development Foundation will ultimately be responsible for developing a national central bank digital currency. But it does mean that Stellar is going to play a key role in that decision-making process, according to Ministry of Digital Transformation official Oleksandr Bornyakov as reported in Cointelegraph.
But no matter which token we're talking about, the chances of these recent gains holding are probably slim. Though momentum has been strong, and nothing says FOMO quite like cryptocurrencies, the underlying fact is that the various forms of blockchain technology have yet to catch on with big businesses.
There's no question that blockchain offers promise and could one day transform the payments and supply chain landscape. But it's been years, and we haven't seen much real-world momentum for blockchain technology. In fact, Coindesk reported earlier this month that IBM (IBM 1.72%) had practically shelved its blockchain projects, according to unnamed sources. This is noteworthy, as IBM was one of Stellar's earliest big-name collaborative partners.
Though the wild swings in cryptocurrencies may be amusing to watch from afar, investing in this space is just asking for trouble.
This article represents the opinion of the writer, who may disagree with the "official" recommendation position of a Motley Fool premium advisory service. We're motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.