Bitcoin and other “cryptocurrencies” are big money, virtually as big as Goldman Sachs and Royal Bank of Scotland combined.
The price of a single bitcoin hit an all-time high of above $3,500 this week, dragging up the value of hundreds of newer, smaller digital rivals in its wake. Now some investors fear a giant crypto-bubble may be about to burst.
At the start of 2017, the total value - or market cap - of all cryptocurrencies in existence was about $17.5 billion, with bitcoin making up almost 90 percent of that, according to industry data firm CoinMarketCap.
It is now around $120 billion - around the same value as Goldman and RBS together - and bitcoin makes up only 46 percent.
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Bitcoin Cash, a clone of bitcoin that was split off from the original last week by a rival group of developers, was valued at more than $12 billion less than 24 hours after it had started trading.
“It’s just created new value out of nowhere,” said Rob Moffat, a partner at Balderton Capital, a London-based venture capital firm who focuses on fintech. “There’s no fundamentals behind any of this - it’s all based on public perception, so you can start to see some really strange phenomena.”
Cryptocurrencies - so-called because cryptography is used to keep transactions secure - allow anonymous peer-to-peer transactions between individual users, without the need for banks or central banks. They use blockchain technology, a shared record-keeping and processing system that means digital money cannot be copied and spent more than once.
Billionaire US investor Howard Marks likens the market to the dotcom bubble of the turn of the century - whose demise he predicted. He said in a recent investor letter that digital currencies were an “unfounded fad ... based on a willingness to ascribe value to something that has little or none beyond what people will pay for it.”
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But advocates of cryptocurrencies say 2017 is just the beginning of bull run. They argue the finite nature of these currency units - there will never be more than 21 million bitcoin, for example - as well as the technological innovation that underpins them will ensure their enduring value.
Whichever way cryptocurrencies move, they are likely to move together because their values are highly correlated, feeding off each other and magnifying the market effect.
That’s partly down to investor sentiment, but also because the start-ups issuing new coins in ICOs generally collect money in a more liquid cryptocurrency, such as bitcoin or, more commonly, Ethereum’s ether - the second-biggest cryptocurrency in total value.
That has driven demand for ether, which has climbed over 3,000 percent so far this year and now has a market cap of around $28 billion.
Sceptics say bitcoin and its rivals are not particularly useful as currencies, as they are still volatile and not accepted by most merchants. They are mostly just used for speculative trading purposes.
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There are some signs of acceptance of the biggest players by the establishment, however; Ethereum has been piloted by the United Nations as a way to distribute funds to Syrian refugees. Ripple has been successfully used as a payment method between settlement systems in a Bank of England trial.