From the FT:
A US Senate hearing on the “risks, threats and promises” of virtual currencies sparked a new leg up in the price of Bitcoin, the experimental currency which has risen by more than 4,700 per cent in value this year.
An intervention by Ben Bernanke, chairman of the Federal Reserve, enabled Bitcoin enthusiasts to put the spotlight where they believe its potential value lies: as a cheaper alternative to the current system for transferring money around the world.
Mr Bernanke, in a letter to the Homeland Security committee, pointed out the Fed’s longstanding view that while virtual currencies pose money laundering and other risks, “there are also areas where they may hold long-term promise”.
His letter recalled a discussion in Congress as early as 1995, in which Alan Blinder, the Fed’s former vice-chairman, said that such innovations held promise if they “promote a faster, more secure and more efficient payment system”.
Law enforcement officials and regulators moved to stop the use of Bitcoin as a currency for dealing drugs by shutting the underground website Silk Road and have warned Bitcoin entrepreneurs that they must introduce anti-money laundering procedures to also avoid being shut down.
Many Bitcoin businesses are finding it hard to persuade traditional banks to deal with them in the US, but enthusiasts believe that a balanced discussion of “risks” and “promises” in Congress will help thaw the climate.
The price of a single Bitcoin, which was $13.50 at the end of 2012, surged more than $100 amid commentary ahead of the hearing on Monday afternoon, setting a new record of $675 on the Mt.Gox exchange.
Here is the chart:
I have little to add except to reiterate that any currency that fundamentally undermines government’s ability to tax faces spectacular regulatory risk.
