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The value of virtual currency Bitcoin surged to over $600 £372, ahead of a US Senate committee
hearing.
The committee has been told virtual currencies are a legitimate financial service with the
same benefits and risks as other online payment systems.
The Homeland Security and Governmental Affairs Committee is exploring the promises and risks
of Bitcoin for government and society at large.
The currency has trebled in value since October.
Fear and confusion The US Senate hearing was prompted by the
closure of the Silk Road website in October. The site, which sold drugs and other illegal
goods, was shut down by the FBI.
Users of the site were required to pay for their transactions using bitcoins.
Representatives from the Department of Justice and financial regulator the Securities and
Exchange Commission have been asked to provide their views about virtual currencies to the
committee and submissions have been received from the FBI and the US Federal Reserve.
Virtual currencies, perhaps most notably Bitcoin, have captured the imagination of some, struck
fear among others, and confused the heck out of the rest of us, the chair of the committee,
Senator Thomas Carper, said in opening remarks.
The FBI, in a letter to the committee released on Sunday, said that it recognised virtual
currencies offered legitimate financial services but they could be exploited by malicious actors.
Mythili Raman, the head of the Justice Department's Criminal Division, told the committee: We
have seen increasing use of such currencies by drug dealers, traffickers of child ***,
and perpetrators of large-scale fraud schemes.
Mainstream acceptance Jerry Brito, senior research fellow at George
Mason University told Bloomberg: ''Two years ago it was alarm when Silk Road first came
on the scene.
''Since then, Congress has been educating itself and understands that there are great
potential benefits, and like any new technology there are going to be some challenges. But
they see there is a balance to be struck here and they are generally positive on the technology,
he said. Trade in Bitcoin is small compared with that
in countries' official currencies. But since its creation in 2008, Bitcoin has become a
popular way to pay for things online. There are currently more than 12 million bitcoins
in existence according to Bitcoincharts, a website that provides financial information
about the currency.
On one exchange site, Mt. Gox, the value of the currency rose to $619 £384 on Monday.
This compares with a price of $200 £124 in late October.
The closing down of Silk Road and hearings in front of US government committees have
led some to believe that prices are increasing as investors think Bitcoin will gain more
mainstream acceptance.
Lots of factors are driving the price action in Bitcoin, including pure speculation, said
Garrick Hileman, an economic historian at the London School of Economics.
Regulatory interest in Bitcoin also traditionally has a positive effect on the price of Bitcoin,
he added.
Jan Lambregts, head of financial market research at Rabobank, which does not trade in Bitcoin,
said regulators were right to get involved.
Looking at it from a distance, it very much looks like it could be a speculative bubble.
It's a small market, with a lot of interest in it, which is inflating and distorting the
price, he said.
But you can see the concerns for governments - this is a currency outside their normal
domain and which is not influenced by central banks.
It may all be relatively small-scale now, but decisions taken now could have wider repercussions
were such virtual currency experiments to be expanded in the future, he added.
Some have questioned whether trading in Bitcoin is insufficiently transparent and therefore
easier to use for illegitimate means. Patrick Murck, from the Bitcoin Foundation, which
promotes the use of the currency, told the BBC that the network was very open and everybody
could see every transaction that happened.
I would challenge that it's for illegitimate use or bad actions. What we're finding is
not that it's a haven for illegitimate activities but that there are many legitimate uses, he
said.
Whatever people are using Bitcoin for, Mr Brito thinks it's here to stay.
These hearings mean Bitcoin is finally coming into its own, he said.
It's a real thing and it's not going anywhere and these hearings highlight that.