Charles Arthur has written a post for the Guardian, titled Bitcoin currency value reaches record high of $147 before plunging down, in which he discusses the current success, and possible pitfalls, of the Bitcoin system.
The price of each Bitcoin began rising abruptly on Tuesday 19 March, going from $47 then to $72 by 23 March. That matches the period of the Cyprus bailout almost exactly: its banks shut on Friday 15 March – and then the Cypriot government announced over the next two days that they required a bailout and that all savers' deposits would be tapped. Though that was later revoked, with only larger deposits being subject to a 10% requisition, savers in other countries with troubled finances had already acted.
Bitcoin's usefulness is its lack of the need for a central bank – and that the peer-to-peer network backing it allows transactions to continue as long as there are people willing to exchange the coins for something of value (or to donate them). For Europeans worried about the possibility that their banks might shut, trapping their savings inside, and not open until some amount had been skimmed from them, that makes Bitcoins suddenly attractive.
Some suggest that the rapid rise in Bitcoins' value may mean that it will become less useful as a currency, because it becomes more attractive to hoard it than to spend it – because exchanging it for any other item or service risks losing out on the rising value. That is "hyperdeflation",argues Joe Wiesenthal of Business Insider. It is the opposite of "hyperinflation", like that which hit the Weimar Republic in Germany after the first world war, or Zimbabwe more recently, where the currency becomes less and less valuable for transactions. By contrast, Bitcoin is experiencing a period when it is becoming less attractive to spend it – which will make it less useful as a currency for trading.