Bitcoin hits $900 high after U.S. Senate hearing

The price of virtual currency Bitcoin rose to new highs on Tuesday after U.S. officials told a Senate committee hearing that virtual currencies are a "legitimate financial service".

The price of Bitcoin soared following the hearing. The currency rose to USD900 on the world’s largest Bitcoin exchange, the Tokyo based MT Gox before falling back to USD727.  This compares to a price of about USD200 in October.

The Homeland Security and Governmental Affairs Committee is examining the implications of the growing popularity of Bitcoin and other virtual currencies in the first hearing of its kind in Congress.

Witnesses at the Senate Homeland Security Committee hearing included officials from the Treasury Department, the U.S. Secret Service and the Department of Justice. 

“The Department of Justice recognizes that many virtual currency systems offer legitimate financial services and have the potential to promote more efficient global commerce,” Mythili Raman, the acting assistant attorney general of the Justice Department, said in testimony.

In a letter to the committee, Federal Reserve Chairman Ben Bernanke, who did not attend the hearing, said that virtual currencies “may hold long-term promise, particularly if the innovations promote a faster, more secure, and more efficient payment system.”

The Fed Chairman also warned that the bank could do little to regulate online currencies.

“Although the Federal Reserve generally monitors developments in virtual currencies and other payments system innovations, it does not necessarily have authority to directly supervise or regulate these innovations or the entities that provide them to the market,” he said.

Bitcoin is digital cash for the internet that isn’t backed by a central bank to regulate it or issue it. It can be used to purchase real goods and services. Its growing popularity has raised questions over whether and how it should be regulated. 

The anonymous nature of Bitcoinhas raised concerns over its use in criminal activity.

According to Bitcoincharts.com, a website that provides financial information about the currency, the value of all Bitcoins in circulation exceeded USD1.5 billion at the end of August 2013, with millions of dollars’ worth of Bitcoins exchanged on a daily basis.