Bitcoin value jumps after US backing

Call it a speculative bubble or the rise of a currency of the future: the bitcoin jumped in value after US authorities appeared to give the virtual money their blessing.

The electronic currency that is suspected of being used for illicit transactions on the internet reached a value of $957 for the first time on specialised currency exchange websites.

But it is highly volatile, and a few hours later it was down to $US700, according to Mt GOX, which manages trading done in bitcoin. Back in April it was worth just $US200.

At a Senate hearing, the bitcoin was "seen in a way more positive than the market had expected because I think the market anticipated almost by definition the authorities would be negative," said Steve Hanke, a professor applied economics at Johns Hopkins University in Baltimore.

In an email to the Senate Homeland Security and Governmental Affairs Committee, the chairman of the US Federal Reserve central bank, Ben Bernanke, effectively welcomed the potential of the bitcoin.

He said that "while these types of innovations may pose risks related to law enforcement and supervisory matters, there are also areas in which they may hold long-term promise, particularly if the innovations promote a faster, more secure and more efficient payment system".

Born after the financial crisis as the invention of a mysterious computer guru who goes by the pseudonym Satoshi Nakamoto, the bitcoin is both a currency generated by computer code which restricts the amount of units created, and a payment system with no centralised structure.

Virtual currency systems "are appealing because they provide cheap, convenient, efficient means to transfer currency," Mythili Raman, Acting Assistant Attorney General at the US Justice Department, told the Senate panel.

Demand for bitcoin is strong because of regulations designed to block many kinds of financial transactions as part of sanctions, Hanke said.

Thanks to its anonymity and lack of commission costs, the bitcoin is "seen more and more as a viable means of payment", Hanke said.

The value of the bitcoin might also be fuelled in the future by China "because Chinese people are savers, and more people are seeing bitcoin as a way to store and invest their money", Linke Yang, vice-president of BTC China, told AFP on the sidelines of a conference in Singapore.

BTC is the largest bitcoin trading platform in China. Its value on BTC has quadrupled in a month to $US400 in mid-November.

Although bitcoin usage does not fall under the monitoring of central banks because it is not issued by a bank, that may not last for long.

A recent Fed study said that "should bitcoin become widely accepted, it is unlikely that it will remain free of government intervention, if only because the governance of the bitcoin code and network is opaque and vulnerable."

Indices:

The Australian All Ordinaries Index has moved down decreasing by -1.2% since closing last Friday to 1:30 pm today.

The rest of the world as measured by the MSCI index increased +1.9% in A$ from closing last Friday to end of trade Thursday.

Have a great weekend,

The team at IPS