Bitcoin’s
rally is accelerating as the U.S. Department of Justice’s description of the
digital currency as a “legal means of exchange” bolsters the prospect of wider
acceptance as an alternative payment system.
Bitcoins,
which exist as software and aren’t regulated by any country or banking
authority, surged to a record $744 on Bitstamp, an
active Web-based exchange where they trade for dollars, euros and other
currencies, after the remarks at a hearing by the U.S. Senate’s Homeland
Security and Governmental Affairs Committee. The gains extended an advance that
has seen the price of Bitcoins quadruple in the past
two months and climb 45-fold so far this year.
Growing interest from investors in China and a
limited supply of Bitcoins have also been fueling the increase in price, while last month’s closing
of the Silk Road Hidden Website -- where people could obtain drugs, guns and
other illicit goods using Bitcoins -- was already
spurring speculators to bet Bitcoins would gain more
mainstream acceptance. Now, government agencies from the U.S. Secret Service to
the Financial Crimes Enforcement Network have weighed in to say that the
virtual currency that’s designed to be difficult to trace has potential
benefits, as well as risks.
Introduced in 2008 by a programmer or group of
programmers going under the name of Satoshi Nakamoto,
Bitcoin is being used to pay for everything from Gummi bears to smartphones on the Internet. There are 12
million Bitcoins in circulation, according to Bitcoincharts, a website that tracks activity across
various exchanges. Bitcoins can potentially reduce
banking-transaction fees, making it an attractive tender for those seeking to
trade via the Web or in stores.
Speculative trades exceeded transactions for goods
and services by 20 to 25 times in the latest quarter, said Vladimir Maslyakov, co-founder of brokerage Exante
Ltd., which has set up a Bitcoin investment fund.
Justin Hanneman, who does
technology support for a Web-hosting company in Austin, Texas, said he has
invested more than $9,000 in Bitcoins since April.
The supply of Bitcoins,
governed by rules embedded in the software of the virtual currency, is
outstripping supply, fueling the price surge. That
also makes it difficult for people to use the digital money to buy goods and
services, since the value of items priced in Bitcoins
is difficult to pin down.
There are about 30 transactions per minute, at an
average amount of 16 Bitcoins, Francois Velde, a senior economist at the Federal Reserve Bank of
Chicago, estimated in a report published earlier this month.