Bitcoin’s Price Doubles and a Processor Prospers, but Is the Digital Currency Now Legitimate?

Digital currency Bitcoin is making strides in its campaign to be viewed as a legitimate alternative to traditional payment methods. A major Bitcoin processor—Atlanta-based BitPay Inc.—yesterday announced it had processed more than $5.2 million in Bitcoin transactions for its e-commerce merchants during March. And earlier in the week, the price of a Bitcoin surged to more than $100, more than double its price in just two weeks, with the total value of all outstanding Bitcoins reaching $1 billion.

Bitcoin is an electronic currency maintained by a decentralized network of cryptologists and application developers. It offers anonymity, international utility, and inflation protection, and has no connection to the existing payment systems. Users can download software from a number of so-called exchanges that provide Bitcoins at prevailing exchange rates. Specialist processors serve merchants.

Bitcoin’s supporters have been fighting the perception that the digital currency is used mainly for illicit purposes, such as money laundering and illegal drug purchases. But BitPay chief executive Tony Gallippi says the value of e-commerce Bitcoin transactions processed in March likely surpassed that of transactions estimated to have been generated by illicit activity on underground sites such as Silk Road. Silk Road sells illegal substances and only accepts Bitcoins in payment.

“Everytime you see a report on the news, the people are uninformed, they say ‘oh, BitCoin is only used for buying drugs,’” Gallippi says. “‘That’s all you can do with it, that’s all people are doing with it, it will never go anywhere.’ We really wanted to demonstrate that there are real e-commerce applications for this and they’re taking off at a very rapid pace and are probably doing more volume in e-commerce than you’re going to see in Silk Road.”

The sharp increase in Bitcoin transactions from BitPay merchants is due primarily to e-commerce retailers selling big-ticket items such as computers, consumer electronics, and precious metals, Gallippi says. BitPay processed over 5,100 completed invoices during March, with more than $3 million in transactions posted during the final eight days of the month. That compares with February’s payment processing volume of $687,000, with 2,300 completed invoices.

BitCoinStore.com, an online consumer electronics retailer, “drove a lot of volume through us last month, with computers, televisions, iPads, any type of technology,” Gallippi says. AmagiMetals.com, an online seller of precious metals, also accounted for a large part of the volume.

BitPay approved 1,300 new merchant applications in March, bringing the total number of approved merchants to more than 4,500.

The increase in e-commerce merchants wasn’t the only good news for Bitcoin. The value of a Bitcoin soared 112% to $100 from about $47 two weeks earlier. Gallippi attributed the increase to the financial meltdown in Cyprus, which has resulted in tight new restrictions on bank capital.

“A lot of the activity in recent weeks is with people deciding that they don’t necessarily like their money in a bank where it’s under the restriction and control of a bank,” he says. “They see gold as kind of a last resort safe haven. But gold isn’t really portable, you can’t take it with you very easily, and you can’t use it for payment if you want to send money to somebody at a distance.”

Bitcoin also is starting to get attention in Spain, Italy and Germany, he adds. It remains to be seen if the recent price run-up is sustainable, however, since Bitcoin prices have experienced sharp increases and falls in the past.

In related BitPay news, the company named Kevin McInturff, former director of application development for Global Payments, as vice president of product management. McInturff will manage BitPay’s e-commerce plug-ins, client libraries and application programming interfaces (APIs).  Also in March, BitPay’s Bitcoin payment tools were integrated into E-GovLink, a billing system used by local governments, and FoxyCart, a cloud-hosted shopping cart service.