Bitcoin hits record exchange values with Cyprus banking crisis

The peer-to-peer virtual currency is up nearly 350 percent in the past two months, thanks largely to uncertainty in Europe's banking community.

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Steven Musil
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Bitcoin's value is up nearly 350 percent in the past two months (click for larger image). Bitcoincharts.com

Forget gold. The hot investment during this time of economic uncertainty in Europe appears to be Bitcoin.

Earlier this month, the peer-to-peer virtual currency was trading at a record $40 for one Bitcoin, more than doubling its value since January, when it was languishing in the midteens. In the past three weeks, it has doubled again, trading as high as $95 today.

All told, it's an increase of nearly 350 percent in the past two months, and much of it is because of the banking crisis in Cyprus.

Bitcoin "is clearly having a breakthrough moment here, and a deeply surprising one given its novelty and nascent infrastructure," Nicholas Colas, chief market strategist at financial technology company ConvergEx Group, wrote in a recent research note.

The banks in Cyprus reopened today after being closed for nearly two weeks. Banks on the tiny island nation collapsed under the weight of losses on Greek government debt, pushing the country to near bankruptcy. A 10 billion euro European Union bailout package will help avoid "the collapse and the bankruptcy of the state," Cypriot President Nicos Anastasiades said in a statement Monday.

"The bottom line here is that incremental demand for Bitcoin is coming from the geographic areas most affected by the Cypriot financial crisis -- individuals in countries like Greece or Spain, worried that they will be next to feel the threat of deposit taxes," Colas wrote, noting that Internet interest in the currency has increased dramatically in Europe. Google-searches for the term have returned to their July 2011 record highs in many European countries, when the currency was trading at record levels before plummeting to $2 later that same year.

Bitcoin sprang up in 2009 as a peer-to-peer currency that intentionally avoided the prying eyes of law enforcement officials. In order to acquire Bitcoins, users access exchange sites to transfer actual currency, such as U.S. dollars, into the digital option.

However, the platform got a poor reputation early on by being linked to an online marketplace that sold illegal drugs, including cocaine, heroin, ecstasy, and marijuana. It has also been the target of frequent thefts, hacks, and scams.

Whatever the reason for Bitcoin's renaissance, 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.

As for the currency's future, Colas says it "seems to be bittersweetly assured."

"Policymakers are human; they make mistakes," Colas writes. "Bitcoin is, ultimately, a machine; it doesn't."