Bitcoin has surged over 40 percent to US$750 (A$800) after US agencies involved in a Senate hearing on the virtual currency confirmed it was a "legal means of exchange".
Its value briefly dived to US$601 as the Senate committee got underway, but it has since recovered to sail past the $US675 high it reached prior to the hearing. It is currently showing prices above $US750.
“We all recognise that virtual currencies, in and of themselves, are not illegal,” Mythili Raman, acting assistant attorney general at the Justice Department’s criminal division, said at the hearing.
The digital currency, which trades 24/7, has risen around 404 percent in the last two months.
The hearing gave legitimacy to a payment mechanism that has been associated with illegal activities even as it gains acceptance by the general public and investment community.
Witnesses at the Senate Homeland Security Committee hearing include officials from the Secret Service and Financial Crimes Enforcement Network and the Justice Department's Criminal Division.
The digital currency's recent rise has also been attributed to growing demand out of China, after the country's leading Bitcoin exchange, BTC China, surpassed Mt Gox as the virtual currency's biggest trading platform.
BTC China also yesterday revealed it had won $US5 million in funding from venture capitalists.
Association with drugs, money laundering, murder for hire and other illegal activities has not stymied interest in Bitcoin, the digital currency not backed by any government or central bank and until recently a niche alternative currency.
The currency, whose supply is limited, is "mined" by solving math problems. Bitcoin transactions are tracked by a network of computers that validate transactions and prevent counterfeit.
In October, the US Federal Bureau of Investigation shut down Silk Road, an online marketplace used to buy and sell illegal drugs, and seized US$3.6 million in Bitcoins.
"Lawmakers are rightfully concerned about the illegal aspects of Bitcoin but the fact that they're giving bitcoin the time of day helps cement its legitimacy," said Christopher Vecchio, currency analyst at DailyFX.
But it may also be government interest itself that is prompting the currency's huge moves of recent weeks, he said.
"If investors feel that Bitcoin is truly legitimate but foresee supply constraints due to exchanges closing or new regulations hitting the market, there is a sense of urgency developing to obtain bitcoins now, 'while you can,'" said Vecchio.