Federal Officials Give Bitcoin Market the Nod of Approval It Needed

Just a few kind words from a handful of federal officials about the positive aspects of the Bitcoin market Monday afternoon were all it took to send the digital currency rocketing from $675 to $900 in a matter of hours.

While Bitcoin prices settled back down into the $600s by Tuesday morning, the significance of the Bitcoin market's reaction should not be dismissed.

What was said at Monday's Congressional hearing before the Senate Homeland Security and Government Affairs Committee marked a turning point in how the U.S. government views Bitcoin.

Rather than being thought of as a rogue form of currency fit only for drug dealers, fraudsters, and other evildoers, speaker after speaker noted that Bitcoin can have a legitimate role to play.

"The Department of Justice recognizes that many virtual currency systems offer legitimate financial services and have the potential to promote more efficient global commerce," testified Mythili Raman, acting assistant attorney general for the DOJ's criminal division.

"Innovation is a very important part of our economy," Jennifer Calvery, director of the Treasury Department's Financial Crimes Enforcement Network (FinCEN), said of the Bitcoin market. "It's something for us to be proud of."

But perhaps the most remarkable statement came from U.S. Federal Reserve Chairman Ben Bernanke, who wrote a letter to the committee rather than appear in person.

Bernanke wrote that Bitcoin "may hold long-term promise, particularly if the innovations promote a faster, more secure, and more efficient payment system."

Bitcoin prices on the Japan-based exchange Mt. Gox immediately started to rise. By early Monday evening Bitcoin prices were more than $800, peaking briefly at $900 before beginning to slip back.

Why the Bitcoin Market Went so High