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Bitcoin is back: Online currency gaining traction

Just a month after many people were predicting its demise, bitcoin is touching new highs.

The virtual currency climbed to a record $273.50 on Mt. Gox, one of the many bitcoin exchanges, marking a 148 percent rise since Oct. 2, when it traded as low as $110.

Bitcoin plunged in October after U.S. law enforcement officials shut down Silk Road, an online purveyor of drugs and other illegal services. Bitcoin had been dogged by the perception that it was used primarily for transactions on Silk Road, and many expected demand to dry up after the website was closed.

As the move to new highs suggests, those predictions were wrong.

(Read more: Bitcoins worth $28 million seized from 'Silk Road owner')

According to Nicholas Colas, chief market strategist at ConvergEx, two key drivers are behind bitcoin's recent move.

The first is increased demand from China. Big companies there, including the search giant Baidu.com, accept bitcoins for payment. The second is the strong demand for SecondMarket's recently launched the Bitcoin Investment Trust.

SecondMarket CEO Barry Silbert acknowledged that demand for the trust is running ahead of schedule. It has taken in $15 million from institutional and high-net-worth investors, exceeding the year-end goal of $10 million, he said.

(Read more: Top hedge fund manager endorses Bitcoin)

But Silbert sees other factors at play in the rally.

He pointed out that at a recent conference, Michael Novogratz, a principal at the hedge fund firm Fortress, recommended buying bitcoins, saying that they likely will be worth a lot in a few years.

Bitcoins
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Bitcoins

In addition, acceptance of the currency is coming not only from investors but retailers, Silbert said. For example, eBay recently said it is considering accepting alternative forms of payments, including bitcoin.

Last, he said, upcoming bitcoin hearings on Capitol Hill probably will be educational rather than confrontational.

"They [Congress] want to understand it better, they want to support innovation, but they want to make sure consumers and investors are protected," Silbert said.

—By CNBC's Mary Thompson

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