Digital currency value skyrockets in wake of Cyprus crisis

The value of the digital currency Bitcoin has appreciated over the last few weeks as monetary worries in Europe drive people to look for alternative places to stash their savings.

As at the time of publication, Bitcoin exchanges show steep rises in the trading rates against real-life currencies.

Against the US dollar, Bitcoin has risen by over 74 percent at the Bitstamp exchange and it is up over 73 percent against the Euro at Mt Gox market.

It has also risen considerably against the Australian dollar.

Bitcoin versus A$ at Mt Gox exchange. Source: Bitcoincharts.com

 

The rapid increase in the value of the digital currency is thought to be caused by the Cyprus government intending to tap into bank savings accounts in the island nation to pay off external debt.

 

Bloomberg reports that Spain is seeing a huge increase in the download of Bitcoin apps, as people there fear the Cyprus crisis could spread to their country as well.

 

As the value of Bitcoin soars towards record heights, some observers are warning the currency is heading towards a bubble.

 

The Economist notes that due to Bitcoin having relatively few users and its "primary use is probably to buy drugs from Silk Road" the currency is being targetted by speculators.

 

"There is every reason to to think the that the current Bitcoin boom will shortly burst," the Economist writes.

 

Bitcoin is a digital cryptographic currency that does not use a central bank and is traded through peer to peer networks and can be exchanged for real-life money.

It is deflationary by design with the rate of inflation halved every four years until there are 21 million Bitcoins in circulation. 

The total value of the Bitcoin currency has risen to around US$818 million presently, with trading volumes on the increase.