by Jeff Cox
CNBC Senior Writer
27 Mar 2013
They won't make a sound no matter how many of them you try to toss in a
bucket, and you can't pitch them in a fountain and wish for good luck. But
make no mistake,
Bitcoins are getting big.
The online alternative currency, previously little more than a curiosity in
financial markets since its 2009 inception, has zoomed in trading value
since the Cyprus banking crisis erupted two weeks ago.
With fears spreading that even insured deposits might not be safe in similar
nations hit by banking crises, those looking for a haven to store their
wealth have fled to the complicated world of digital cash.
"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," Nicholas Colas, chief
market strategist at ConvergEx, said in a report on the startling trend.
Bitcoins operate on a network that, at least on
the surface, resembles a typical exchange on the capital markets.
Buyers can exchange their paper currencies for
Bitcoins and use them wherever they are accepted. Sellers can exchange their
Bitcoins back for their original currency.
But the value of the currency has been anything but typical.
Bitcoincharts.com lists the value of
Bitcoins compared to other currencies, including U.S. and Canadian dollars,
euros and pounds.
On one of the U.S. currency exchanges, labeled "Mt.
Gox," the Bitcoin value has zoomed to more than $87 in Wednesday
trade. That represents close to a 20 percent gain over just the past week, a
one-month gain of 41 percent and nearly a quintupling of value in the past
The "Mt. Gox" Euro trading has seen numbers nearly identical to the dollar
A more sober perspective might suggest that Bitcoins are at best a momentary
bubble and at worst a risky chance to take considering their novelty.
But the trend also exemplifies just how nervous cash-holders are over the
"This is a clear sign that people are
looking for alternative ways to get their money out of the country,"
said Christopher Vecchio, currency analyst at DailyFX.
"If we're going to talk about the stability
of the Euro and whether or not there are going to be capital controls in
place not just in Cyprus but around the Eurozone, I think there is some
efficacy behind Bitcoins as an alternative liquidity vehicle."
The role of alternative currency had been
falling largely to gold over the past several years. But the precious metal
has been on a pretty aggressive downward path since its most recent peak in
Gold advocates, though, continue to stress its importance as a safe haven
and store of wealth.
"Why would anyone trust an electronic form
of money that could get hacked and then diluted into oblivion?" said
Michael Pento, president of Pento Portfolio Strategies.
"We already have a form of money that is
indestructible and whose supply cannot be increased by any government or
It's called gold."
Yet currency pros are at least willing to give
Bitcoins the benefit of the doubt as a legitimate trading vehicle as
situations like Cyprus continue to crop up.
The $964 million Bitcoin network pales to the $4 trillion a day in total
currency trading, but it's clearly growing.
"Right now it seems safe. Personally it
wouldn't be my preferred vehicle to trade money because it's
unregulated," Vecchio said.
"But people are deeming it legitimate even
though it's not backed by a sovereign. That could be the attraction
behind it. There's no sovereign credit risks to Bitcoins."