While Bitcoin dominates the headlines, its underlying blockchain technology has spawned a new ecosystem of alternative cryptocurrencies, known as “altcoins.” Following Bitcoin’s staggering 1,000% moonshot of the past 12 months, a fresh wave of capital has flooded the space searching for the next 10-bagger.
Altcoins arrived on the scene via a hot, new funding mechanism called initial coin offerings (ICOs), which are like a hybrid of venture capital and initial public offerings for stocks. These crowdfunding campaigns involve the exchange of cash or cryptocurrency for the new coins, which then can be used within the specific altcoin network for purposes such as trading storage space, renting computational power or anonymous transactions.
According to coinmarketcap.com, the number of altcoins outstanding swelled from 64 in early 2014 to 869 today. This year alone, the total market capitalization of altcoins grew 4,700%, from $2.2 billion to a recent peak of $94.4 billion, before falling to $71.7 billion.
Like the dotcom bubble of the late 1990s, the current altcoin market likely contains the crypto versions of Google and Amazon, but it's also likely to contain a lot more duds a la Webvan and Pets.com. The recent surge has produced “blockchain for dentists” (DentaCoin) and “blockchain for Christians” (JesusCoin), which “boasts the unique advantage of providing global access to Jesus that’s safer and faster than ever before.”
Regulators have begun cracking down. Earlier this month, the Chinese government announced an immediate ban on ICOs for Chinese startups, claiming this new fundraising mechanism has “seriously disrupted the economic and financial order.” In the U.S., the Securities and Exchange commission concluded that altcoins would be treated as regular securities, and are subject to the same applicable securities laws that punish Ponzi schemes, boiler rooms and other fraudulent attempts to part investors with their hard-earned dollars.
Read more: 4 Top-Performing Alternatives to Bitcoin | Investopedia
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