Online currency bitcoinhas surged in value since the Cyprus bailout saga sparked global interest in alternatives. The currency surged over 360 percent in the past month, but one currency analyst is warning of its unstable nature.
Bitcoin is a virtual currency allowing users to exchange online credits for goods and services. There are currently 10 million Bitcoinsin circulation but the currency is capped at 21 million coins. While there is no central bank that issues them, new bitcoins can be created online by using a computer to complete difficult tasks, a process known as mining.
Bitcoins effectively bypass conventional banks, but they haven't escaped attention in the financial community with analysts at Societe Generale addressing the subject in a note to clients after a deluge of requests from as far afield as India.
Sebastien Galy, senior currency strategist at the bank told CNBC the rally in bitcoins has been driven by changes in the rules on creating new coins by mining, rather than a rally sparked by Cyprus uncertainty.
"With far more rapid advances in the technology of processing than mining, the rules have already been changed to stop some form of mining which were too effective. This was effectively a form of revaluation of the currency," Galy said in a research note on Wednesday.
The price of a bitcoin versus the dollar closely follows the cost of mining the virtual asset, he said, adding that as more people opt to mine bitcoins the price rises because of a fixed weekly supply.
According to Bitcoincharts.com, a bitcoin traded at about $141 on Wednesday morning, up from $30 at the start of March.