Advocates see them as the future of finance, critics see them as scams, and a lot of early investors are profiting from the eye-popping returns generated in the rapidly expanding world of digital currencies. So how should the average investor navigate the changing landscape? Very carefully.
"If the individual investor has a high risk tolerance, yes, they could invest," said Nicholas Colas, chief market strategist at ConvergEx. "But it's an amazingly risky investment and borders on a purely speculative punt."
There are hundreds of online currencies out there—327, according to the website Coinmarketcap.com. The best known among them is bitcoin. The creation of an unknown programmer or group of programmers, bitcoin grabbed headlines last year largely because it rose more than 6,200 percent before falling again—it has recently hovered around $600. The wealth created by bitcoin has prompted firms ranging from Overstock.com to Dish Network and Expedia to start accepting bitcoin payments. It has also spawned hundreds of new businesses looking to cash in on the digital currency craze.