Decentralised virtual currency bitcoin hit a record high overnight, breaking through the $US500 barrier. At 9.20 AEST, it had climbed to $US520.

The surge comes despite a recent FBI crackdown on online marketplace Silk Road, which many people speculated would have lessened the demand for bitcoin.

However, bitcoin has soared 35% since the start of November.

(Price in US$)

Market strategist from IG Markets Evan Lucas says it’s very hard to predict or explain why bitcoin has spiked, as the digital currency does not have the liquidity of traditional financial assets.

“It’s an online phenomenon, constantly affected by the possibility of regulation, that’s not very free-flowing.

“How do you value something with such low liquidity? It’s very hard. That low liquidity is why you can see it pop up so quickly, so fast. If there’s a surge of people entering the market, it can really have an outsized effect on the price.”

In April, IG Markets began offering a grey market for bitcoin on its platform. This allowed people to place bets on where bitcoin was likely to move.

However, the currency trader has since closed the market. Lucas says the volatility of bitcoin made it too difficult to keep up with.

“It was too hard for our clients to gauge where it was going,” he says.

“There was a burst of interest initially, but that waned pretty quickly because of that volatility. We’re keeping an eye on it, and we may offer a market again once we see a bit more stability.”

Many start-ups and entrepreneurs are pinning their hopes on bitcoin taking off. But most of the current demand for bitcoin comes from countries like Argentina, Russia, Belarus, Georgia — hardly Silicon Valley. Lucas says this is because bitcoin is most useful in countries where it’s hard to exchange local currency into US dollars.

“It allows traders to buy and exchange products much faster than going through official channels,” he said.

“You have people in countries like Georgia setting up bitcoin shops in cafes, becoming currency dealers in effect. The exchange spreads they offer are massive, and people take it.”

“Once bitcoin hit mainstream media earlier this year, a bit more investigation into who was using it occurred. And you can see its being used to circumvent what are, often, draconian currency controls.”

Still, Lucas isn’t game to bet on bitcoin’s future prospects.

“It is not a free-flowing market, so guessing where it’s headed is almost impossible. I wouldn’t make a call.”

*This article was originally published at SmartCompany