While not an official seal of approval, the hearing has given some legitimacy to a payment mechanism that has been associated with illegal activities even as it gains acceptance by the general public and investment community. Bitcoin's rise and rise. Credit:Blockchain.info Witnesses at the Senate Homeland Security Committee hearing included officials from the Secret Service and Financial Crimes Enforcement Network and the Justice Department's Criminal Division. "The government is taking a very thoughtful and balanced approach to bitcoin and bitcoin regulation," said Barry Silbert, founder of the Bitcoin Investment Trust, launched in late September and valued at $US22.8m on Friday. It holds around 53,000 Bitcoins. Bitcoin traded as high as $US675 on Monday on Tokyo-based exchange Mt. Gox, the best-known operator of a bitcoin digital marketplace. That was a rise of 27.7 per cent from Sunday's close. It last changed hands at $US672.

The digital currency, which trades 24 hours a day, every day, has risen around 404 per cent in the last two months. Association with drugs, money laundering, murder for hire and other illegal activities has not stymied interest in bitcoin, the digital currency not backed by any government or central bank and until recently a niche alternative currency touted by computer geeks and anti-government advocates. The currency, whose supply is limited, is "mined" by solving maths problems. Bitcoin transactions are tracked by a network of computers that validate transactions and prevent counterfeit. In October, the US Federal Bureau of Investigation shut down Silk Road, an online marketplace used to buy and sell illegal drugs, and seized $US3.6m in bitcoins. "Lawmakers are rightfully concerned about the illegal aspects of bitcoin but the fact that they’re giving bitcoin the time of day helps cement its legitimacy," said Christopher Vecchio, currency analyst at DailyFX.

But it may also be government interest itself that is prompting the currency's huge moves of recent weeks, he said. "If investors feel that bitcoin is truly legitimate but foresee supply constraints due to exchanges closing or new regulations hitting the market, there is a sense of urgency developing to obtain bitcoins now, ‘while you can,’" said Vecchio. Irrespective of the reason for the move, Bitcoin Investment Trust's Silbert at least is optimistic about the long-term outlook for the digital currency. "Everyone is uncomfortable that the price has moved so quickly," Silbert said. "Bitcoin in its short history has gone through a series of bubbles and busts. But after every bust a new price base has formed." Shares in the Bitcoin Investment Trust had a net asset value of $US42.44 on Friday, up from $US12.88 when the fund launched on September 25. Each share is 0.1 per cent of a Bitcoin.

Telegraph UK