Surging Bitcoin plunges $30 after exchange outage, hack

The value of Bitcoin has been skyrocketing of late, gaining more than 50 percent in the last few days, but two unrelated events today knocked the virtual currency back down a bit.

The peer-to-peer currency, which was languishing in the midteens in January, surged past $100 on Monday and was trading as high as $147 today before an hour-long outage at Mt. Gox, the world's largest Bitcoin exchange, pushed its value down to $115. The currency rebounded a bit to close at $123, a 500 percent increase in the past two months.

Mt. Gox initially blamed the outage on a surge in trading volume that created a lag in trading and order cancellations. However, in a subsequent tweet, the exchange said it was experiencing a distributed denial-of-service attack.

Meanwhile, Bitcoin wallet company Instawallet announced today it has suspended its service "indefinitely" after being hacked.

"Our database was fraudulently accessed, due to the very nature of Instawallet it is impossible to reopen the service as-is," Instawallet said in a statement posted to its Web site. "In the next few days we are going to open the claim process for Instawallet balance holders to claim the funds they had stored before the service interruption."

The service detailed its plans for handling claims submissions as thus:

For the first 90 days we will accept claims for individual Instawallets. Your wallet's URL and key will be used to pre-populate a form to file the claim.
After 90 days, if no other claim has been received for the same url, your Instawallet balance under 50 BTC will be refunded. If several claims have been filed for the same url, we will process those claims on a case by case basis, under the presumption that the claim we received first belongs to the legitimate balance holder.
Claims for wallets that hold a balance greater than 50 BTC will be processed on a case by case and best efforts basis.

While Instawallet did not indicate whether any funds were lost in the hack, the Bitcoin platform has been a frequent target for criminal activity including thefts, hacks, and scams. Nearly a quarter of a million dollars was stolen in one such virtual heist last year.

Launched in 2009 to intentionally avoid the prying eyes of law enforcement officials, the virtual currency has been gaining traction with investors in recent months as acceptance has grown. WordPress announced last November that it would begin accepting Bitcoin as payment for upgrades on the popular blogging platform. The currency platform gained more backing last month when Mt. Gox, the world's largest Bitcoin exchange, reached an agreement with CoinLab to manage the exchange's operations in the U.S. and Canada.

Some analysts also believe that Bitcoin's growing popularity in recent weeks is due to the recent banking crisis in Europe that resulted in Cypriot banks being closed for nearly two weeks last month.

Demand for the currency has been especially great in countries like Greece and Spain, where investors are "worried that they will be next to feel the threat of deposit taxes," Nicholas Colas, chief market strategist at financial technology company ConvergEx Group, wrote in a recent research note.