Spaniards spooked by Cypriot savings grab turn to virtual currency to hide money from cash-strapped government

• Trio of Bitcoin apps soar up Spanish download charts
• Bitcoin is a decentralised peer-to-peer currency that cuts out banks
• Value soars from £32 to £48 per Bitcoin in just a week
  

By Damien Gayle

Published: 13:59 EST, 21 March 2013 | Updated: 05:20 EST, 22 March 2013

Spaniards scared of a savings raid like the one threatened by the cash-strapped Cypriot government last week are turning to a 'virtual' currency called Bitcoin to hold onto their cash.

A trio of Bitcoin apps have soared up Spain's download charts as people in the country move their money away from banks to avoid any attempt by the government to tap them for funding.

Bitcoin is a alternative currency popular online that, unlike conventional currency, has no central bank.

Spaniards demonstrate against austerity measures: Figures show people in the country are increasingly turned to the Bitcoin virtual currency to hide their savings from the cash-strapped government

Users can exchange bitcoins internationally from their computers directly through a 'wallet' app or a via website without the need for intermediate financial institutions.

As of March 2013, the monetary base of Bitcoin was valued at over $500million (£330million).

Spain's sudden interest in Bitcoin coincided with news that the Cyprus intended to tax Cypriot savings accounts as part of the embattled country's bailout programme.

Although that proposal was subsequently rejected by the Cyprus parliament, it didn't stop Spaniards from developing a sudden, almost spontaneous interest in the alternative currencies.

The Bitcoin Gold app shot up the Spanish iPhone Finance category from 498 to 72, while another app called Bitcoin Ticker went up from 526 to 52 in a single day, BGR reported.

The value of the currency has since soared from around £32 per bitcoin on Monday to more than £48 today.

Nick Colas, chief market strategist at ConvergEx Group, a technology company, told Bloomberg Businessweek that the rise was 'one hundred per cent' due to the crisis in Cyprus.

'This is an entirely predictable and rational outcome for what’s happening in Cyprus,' said Mr Colas. 'If you want to get a good sense of the stress European savers are feeling, just watch Bitcoin prices.'

That savers are more willing to invest their cash in an unstable, experimental currency like Bitcoin has been seen as a seen as a sign of growing uncertainty over European banking.

Bitcoin has only been in circulation since 2009, and in that time it has experienced wild fluctuations in value and occasional hacking and account thefts.

The anonymous, encrypted nature of the currency has made it a favourite for black-market transactions, including online illegal drugs purchases at the Silk Road marketplace.

Unrest: Cypriots protesting against plans by their government to raid their savings to plug a budget black hole. The measure was flatly rejected by the country's parliament

Bitcoin removes financial institutions entirely from transactions, which has led bank officials to fear its increasing popularity.

A European Central Bank report published last year warned that increased demand for Bitcoin 'could have have a negative impact on the reputation of central banks'.

'The public may perceive the incident as being caused, in part, by a central bank not doing its job properly,' the report added presciently.

However, while Bitcoin might be considered a possible bolt-hole for small savers scared that their nest eggs could be seized by cash strapped governments, the Russian billionaires also burned by the Cypriot tax levy will not to look for another safe haven.

'Bitcoin is good if you want to make a deposit of between $1,000 and $10,000,' Mr Colas said. 'But the liquidity is just not there in the system for multimillion dollar transactions.'