Bitcoin and many other cryptocurrencies have performed extremely well over the past year, especially in the latter months of 2017. In fact, out of the largest cryptocurrencies, bitcoin's 650% one-year return is the worst performance.
With that in mind, here's a look at how the five largest cryptocurrencies have performed over the past year and how much money you'd have if you invested $1,000 in each of them a year ago.
Image source: Getty Images.
What are the five largest cryptocurrencies?
Obviously, looking at how well cryptocurrency investments would have done over the past year only makes sense if we consider those cryptocurrencies that have been in existence (at least in some tradeable form) for a year or more.
I'll discuss the exclusions in the next section, but the five largest cryptocurrencies that have been around for a year or more are:
- Bitcoin: The original cryptocurrency, bitcoin has had a remarkable run over its roughly eight-year history. Bitcoin is still the most valuable cryptocurrency by a wide margin, and its returns include other coins that have "forked" from it, such as bitcoin cash.
- Ethereum: Instead of being designed as a payment currency like bitcoin, Ethereum is designed for business applications. Without getting too technical, Ethereum uses "smart contracts," which are in testing by more than 200 organizations.
- Ripple: Like Ethereum, Ripple isn't designed as a payment currency. Rather, Ripple is specifically aimed at the banking industry to facilitate cheap and efficient money transfers, especially internationally. Ripple's network settles transactions almost immediately and at a bare minimum of expense, which is why it has secured partnerships with American Express, MoneyGram International, and others.
- Litecoin: The "silver to bitcoin's gold," Litecoin actually formed from a fork in the bitcoin network back in 2011. Because it came from bitcoin, Litecoin is also intended as a payment currency, and with shorter transaction times and lower fees, there's a case to be made that it's a more practical method of payment.
- Stellar: Another example of a cryptocurrency aimed at enterprise clients, Stellar offers customers transaction-processing times of just a few seconds and has attracted attention from major corporations such as IBM.
How the top cryptocurrencies have done over the past year
Here's a look at the five largest cryptocurrencies that have been in existence for at least a year by market capitalization, as of this writing. Here's how much each one is trading for now and how much it has gained over the past year.
Price on April 13, 2018
Price on April 13, 2017
Data source: www.investing.com. Prices as of April 13, 2018 at 10:30am EDT.
One quick note. Bitcoin cash is the fourth-largest cryptocurrency as of this writing, but it hasn't been in existence for a year. However, it was spun off from bitcoin in August 2017, so it's technically possible to have invested in it a year ago. Therefore, the current market price of a bitcoin cash token is included in bitcoin gains.
For the sake of being thorough, cryptocurrencies that are currently in the top 10, but were not yet trading a year ago include EOS and Cardano, both of which have also performed quite well over their short histories.
So, how much would you have if you got in a year ago?
Let's say that you had the foresight to predict the 2017 cryptocurrency boom, and for diversification purposes you decided to invest $1,000 in each of these cryptocurrencies a year ago from the time of this writing (April 13, 2017).
Based on the data in the chart, your original $5,000 investment would be worth an impressive $128,240 today -- more than 25 times what you put in. And keep in mind that this is after the massive cryptocurrency plunge that's taken place so far in 2018.
What to expect going forward
Cryptocurrency investors who got in a year ago are certainly in good shape today, but it's important to manage your expectations going forward.
In a letter to Berkshire Hathaway shareholders that was published in 2015, Warren Buffett reflected on the company's amazing returns over the 50 years since Buffett took the helm. While he believes that Berkshire will still deliver strong performance for investors, he cautioned them not to expect the same level of returns going forward -- the company has simply become too big.
The same idea applies here, especially to the recent top-performers like Stellar. While these cryptocurrencies could indeed go up from here if they start to catch on, it's not realistic to expect Stellar to rise by 7,820% every year. In fact, if Stellar were to repeat its performance over the next month, its market cap would be greater than the current value of all cryptocurrencies combined.
In a nutshell -- cryptocurrencies had a great year in 2017. While they could certainly continue to rise, it's important to be aware that the performance of the past year is unlikely to repeat itself.
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Matthew Frankel owns shares of American Express and Berkshire Hathaway (B shares), and owns Ethereum and Litecoin tokens. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares). The Motley Fool is short shares of IBM. The Motley Fool recommends American Express. The Motley Fool has no position in any cryptocurrencies mentioned. The Motley Fool has a disclosure policy.