Currency

Bitcoin Rate Soars On Back Of Hard Cash Investments

Bitcoin is money you cannot touch and only ‘virtually’ spend online, but the concept is attracting a lot of intention from investors putting up real cash to back the currency.

Supporters see this as a sign of faith in the currency, but regulatory bodies are now taking a closer interest as interest grows.

In the past few months, millions of pounds have gone into Bitcoin start-ups even though hackers are allegedly manipulating the currency’s exchange rates.

Those accusations have not stopped major venture capital firms pouring money into businesses like CoinLab, Coinbase and Coinsetter.

One of the biggest backers is Twitter backer Union Square Ventures who have invested £3.25 million in Coinbase.

International currency

That investment tops the £1.3 million that venture firm Andreessen Horowitz put into OpenCoin recently.

Their backing comes at a pivotal moment for the fledgling Bitcoin industry, which is not supported by a central bank, has no transaction fees and does not recognise borders, but the currency provides a simple way to buy goods and services online.

Fred Wilson, of Union Square, said: “There will be more money being poured into this space. This is a trigger point.”

Bitcoin gives spenders a virtual wallet to store their currency and lets them pay from the fund.

Bitcoin is incredibly popular, and in the case of Coinbase, has seen 166,000 members sign up since January 2013. In April, they converted £9.8 million of hard cash into Bitcoin.

To put the scale of take-off for Bitcoin into perspective, Coinbase say they only saw £650,000 exchanged in January, while the user base is growing at the rate of 15% a week.

The firm makes its money by charging a 1% conversion fee for turning real world money into Bitcoin and back again.

Growing interest

Growing interest from a range of big name merchants, including Reddit, PayPal and other online ventures keen to avoid the hefty transaction charges from their banks means that Bitcoin could soon become a major player for online shoppers.

However, there is one slight issue to spoil the Bitcoin success story so far. Hackers selling their Bitcoin hauls when the currency market is high, then launching a ‘denial-of-service’ attack on the exchanges to stop them working properly and sit back for the currency to fall.

Once the currency falls to a value they like, the hackers then buy back in again.

One of the biggest exchanges is Tokyo-based Mt Gox which had servers disabled for four hours in one of the attacks.

Bitcoin is still a relatively volatile currency, in part because of the destabilising hacking attacks, which are a concern for traders who have seen the Bitcoin rise in value from £3.25 last summer to £76.33 in May 2013.

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