Virtual currency surges on back of Cyprus financial crisis
News on 30 Mar 2013
News on 30 Mar 2013
The Cyprus government’s decision to plunder personal bank savings through a substantial levy designed to ease its cash-strapped situation has been a good thing for the virtual currency Bitcoin, say financial experts in a CNBC report this weekend.
The virtual currency has yet to make serious inroads into the online gambling global market, but is being used at some online casinos. It is more widely used in e-commerce markets, however, and is now finding favour as an alternative for some savers concerned that their bank accounts could be raided for up to 40 percent of their balances by other cash-starved governments.
The value of the alternative currency has soared since the Cyprus banking crisis erupted two weeks ago, CNBC reports.
“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 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.
Bitcoincharts.com lists the value of bitcoins compared to other currencies, including U.S. and Canadian dollars, Euros and pounds sterling.
On one of the U.S. currency exchanges, labeled “Mt. Gox,” the bitcoin value zoomed to more than $87 in mid-week trade, CNBC notes.
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 year. The Euro rate on Mt.Gox has shown similar gains for Bitcoin.
Experts are divided on the security of Bitcoin.
“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 euro zone, I think there is some efficacy behind bitcoins as an alternative liquidity vehicle.”
However, Vecchio is concerned by the unregulated nature of the virtual currency, saying:
“Personally it wouldn’t be my preferred vehicle to trade money because it’s unregulated. 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.”
Gold advocates 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 individual decree. It’s called gold.”
The $964 million bitcoin network pales in comparison to the $4 trillion a day in total currency trading, but it’s clearly growing, the CNBC report observes.
