Investors who have bought and held Bitcoin have done well for themselves, but those in cocoa have amassed riches of their own.
The price of cocoa has doubled to start 2024 and tripled over the last 12 months.
"The worst is still yet to come," Rabobank commodities analyst Paul Joules said.
The world is facing the largest deficit of cocoa supply in over 60 years. The International Cocoa Organization forecasts a shortage increase of 405% compared to last season.
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With roughly two-thirds of the world's cocoa production in West Africa, extreme weather in the region has made it more difficult to grow healthy cocoa crops and transport them to ports for international shipment.
Unlike other supply and demand imbalances, it's not easy to increase the supply of cocoa quickly. Trees in West Africa have been aging and yielding less cocoa over the years and farmers have had trouble getting the diseases impacting cocoa crops under control.
Hedge funds that have piled into the commodity are benefiting from the situation, with over $8.7 billion in bets via cocoa futures products that the commodity will continue to rise.
The bets have further raised the price of cocoa. Martijn Bron, a former global head of cocoa and chocolate trading for Cargill Inc., said hedge funds probably have the "biggest risk exposure to cocoa that they've ever had."
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Meanwhile, the rapid price appreciation of cocoa has impacted shares of chocolate companies such as Hershey Co. HSY, which has seen its stock fall about 23% in the past year. It’s also led to sell-side analysts hitting the company with downgrades.
Morgan Stanley recently issued an underweight rating on Hershey in large part because of the steep rise in cocoa impacting its gross margins. BNP Paribas also issued a downgrade.
With consumers sensitive to prices after enduring the worst inflation in 40 years, cocoa prices might turn regular chocolate bars into luxury goods.
Or they could be another victim of shrinkflation where companies create smaller chocolate bars sold at the same price or use less cocoa in their products.
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