SAN FRANCISCO (MarketWatch) — Until now, I’ve held off from offering an opinion on bitcoin, the most visible and popular of so-called digital currencies, that has some investors frothing at the mouth. I was waiting to see if it was for real or just a fad.

Bitcoin, it turns out, doesn’t seem to be going away soon. To the contrary, it’s becoming more popular and well known. There are more than 12 million bitcoins in circulation worth more than $12 billion. And the more people know about virtual currency like bitcoin, the more it becomes accepted, and the more it becomes an option for investors. Read about retailers that offer discounts for paying in bitcoin.

After some investigation, I’ve found that bitcoin is an interesting concept. At best, it’s a digital currency that can facilitate transactions globally. Also, as many of its investors argue, bitcoin offers some protection against potential swings in the U.S. dollar DXY, +0.03% , the currency to which it’s pegged.

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Even Federal Reserve Chairman Ben Bernanke, whose monetary policy franchise is threatened by an alternative currency, is on board. Last month he told Congress bitcoin has the potential to “promote a faster, more secure, and more efficient payment system” globally.

But bitcoin has some serious problems. There’s the volatility. There’s the potential for it to be used in illicit or illegal transactions. There’s the checkered track record. Read: Should you put bitcoins in your retirement portfolio?

As serious as those are, the big problem with bitcoin isn’t the currency itself, it’s who’s buying it and driving up the price.

And to be blunt, for the most part it isn’t the people looking for a efficient, safe global currency. It’s mostly the paranoid class of investors. They’re hoarding it to ward off what they believe is coming hyperinflation. They don’t trust the Fed. They don’t trust the government. They don’t trust central banks.

In short, they’re the gold bugs. Read: Bitcoin, not gold, has the Midas touch.

And gold bugs love nothing more than unorthodox, meaningless investments to protect themselves from the inflation bogeyman. Without a gold standard pegging the dollar, they’ve found a currency that they think will do it for them: bitcoin.

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What makes a bitcoin investment even more tempting is its technological dazzle, or what James Surowiecki called the “cool factor.” Bitcoin is “alternative.” It’s new. It’s anti-government, anti-bank. It’s a currency that allows some investors to believe they’re checking out of the economic system.

There’s nothing wrong with that. Hey, after all, we are a free country, right? Read about what happens to your bitcoin after you die.

Except as New York Times columnist Paul Krugman noted, hoarding any currency pegged to the dollar takes dollars out of the economic system. That, of course, hurts growth.

Another serious issue is bitcoin’s rapid price growth. In January, bitcoin was worth $13. More recently, in just 60 days, bitcoin has soared from $211 to $1,242. Along the way, however, there have been significant zigs and zags. As of Monday night, it was trading at around $1,094, according to bitcoincharts.com.

While there’s no arguing that bitcoin has been a good investment, the currency’s volatile climb doesn’t suggest it’s the safe harbor its proponents argue it is. Right now, at least, bitcoin looks like the opposite: a speculative investment that’s at the mercy of market whims, rising and falling on popularity, selloffs and buying. At worst, bitcoin looks like a bubble. Read: Strategies for trading bitcoin as prices swing.

At least for now, the commercial possibilities for bitcoin seem limited. If you sold an $1,100 television set in exchange for one bitcoin at $1,242, you aren’t too happy with bitcoin’s $1,094 price. Likewise, if you bought eight shares of Twitter when bitcoin was roughly $250, you’re tweeting your displeasure.

No wonder no one really wants to use bitcoin in a legitimate transaction. Bitcoin may possibly be the best vehicle to buy illegal drugs or launder money, but it sure isn’t a stable currency, and it’s nowhere near the kind of investment that its fans claim.

That, in part, is why the lack of skepticism about bitcoin and other digital currencies from lawmakers and regulators is alarming. The Senate Homeland Security and Government Affairs committee hearing just before Thanksgiving week was astoundingly void of caution. Bitcoin investors took note, sending the currency to new heights against old-fashioned money.

You know, legal tender. Maybe lawmakers should ask themselves why people are creating an alternative to the currency of the United States, rather than extolling a dangerous substitute.

Perhaps those who served on the panel are pining for some lobbying or campaign contributions in the form of bitcoin during the next cycle. Maybe regulators are hoping to land a post-government job in a private bitcoin trading house.

They shouldn’t get their hopes up. For all of its fashion, bitcoin mostly is still the currency of gold bugs. Edgy gold bugs, perhaps. But it still should make a real investor’s skin crawl.

For further reading:

Matt Lynn on how bitcoin, not gold, has the Midas touch

Tatar/ Retirementor: Should you put bitcoin in your retirement portfolio?

Willard: some bitcoin trading strategies as prices swing