According to financial experts, the Cyprus government's decision to extend its reach to personal bank savings by introducing a levy that was supposed to relieve its banking crisis resulted in a surge of business for the virtual currency Bitcoin.
While this virtual currency has not reached its peak of popularity in online gambling, it is very widely used in e-commerce markets, and is benefitting from the whole situation as many observe it as a super-saving alternative to consumers’ bank accounts being decreased by up to 40 percent due to taxes that could also be imposed by other cash-strapped governments.
Regarding the currency’s boost in light of the Cyprus banking crisis, Nicholas Colas, chief market strategist at ConvergEx, said: "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."
On the Bitcoincharts (.com) site, the value of bitcoins is compared to other currencies, including U.S. and Canadian dollars, Euros and pounds sterling. And on one of the U.S. currency exchanges, "Mt. Gox," the bitcoin value has soared to more than $87 in mid-week trade, which is almost 20 percent more over just the past week, a 41 percent rise in a month and almost 5x more than in the past year. Mt.Gox’s Euro rate has shown similar soaring numbers for Bitcoin.
Concerning the security of the currency, Christopher Vecchio, currency analyst at DailyFX, said: "This is a clear sign that people are looking for alternative ways to get their money out of the country. 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, he added that "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 risk to bitcoins."
On the other hand, gold advocates oppose such surge in virtual currencies, underlining the importance of gold as a safe haven and store of wealth.
In line with this, Michael Pento, president of Pento Portfolio Strategies noted: "Why would anyone trust an electronic form of money that could get hacked and then diluted into oblivion? 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."
