Bitcoin is spiraling out of control – the cryptocurrency soared to a record high of $649, before tailing off slightly to $640 at the time of writing, on the Mt. Gox Bitcoin exchange.

This comes as the US Senate Committee on Homeland Security and Governmental Affairs gets ready for a major hearing this Monday morning called “Beyond Silk Road: Potential Risks, Threats and Promises of Virtual Currencies”, which will discuss the challenges that regulatory bodies and law enforcement agencies will have in dealing with the digital currency.

Earlier today, Bloomberg reported some good news for Bitcoin enthusiasts – in that meeting, the Department of Justice and the SEC are expected to give the cryptocurrency an unofficial nod of approval, by telling the Senate Committee that it should be considered a “legitimate financial instrument”. According to letters obtained by Bloomberh, the digital currency comes with risks and benefits just like any other online-payment system:

“The FBI’s approach to virtual currencies is guided by a recognition that online-payment systems, both centralized and decentralized, offer legitimate financial services,” wrote Peter Kadzik, principal deputy assistant attorney general, in a letter on Sunday.

“Like any financial service, virtual currency system of either type can be exploited by malicious actors, but centralized and decentralized online-payment systems can vary significantly in the types and degrees of illicit financial risk they pose.”

Today’s hearing comes after a busy few weeks for Bitcoin. First, there was the sudden seizure of the infamous Silk Road website, the online marketplace for drugs, weapons and hit men (amongst other illicit goods and services), which handled around $1.2 billion in Bitcoin transactions before the FBI closed it down. Then, just last week, there was news of the Chinese-based Bitcoin exchange that suddenly disappeared without trace, taking with it around $4.1 million worth of Bitcoin from investors.

But for all the jitters that these stories might have caused Bitcoin, well, nothing really shook investor’s confidence in it. On the contrary, the opposite has happened, and now people are speculating why there’s been such confidence in the cryptocurrency. One theory is that Bitcoin’s soaring value might be due to an insatiable demand from Chinese buyers – evidenced recently when BTC China overtook Mt. Gox to become the world’s biggest Bitcoin trading platform for the first time.

On Sunday, CNCB spoke to Bobby Lee, CEO of BTC China, who predicted good things for Bitcoin as it becomes more established in Asia:

“There’s more awareness of Bitcoin following recent press coverage,” Lee said, highlighting recent press coverage in China.

“Asia is known for being an area where people emphasize savings, so when Asia moves it’s big regardless of whether it’s real estate, gold, stocks or bitcoin. I think that’s what we’re seeing right now.”

Elsewhere on Twitter, there’s been further optimism in Bitcoin’s potential to soar to even greater heights:

I wonder if in a year people would kill for a chance to buy Bitcoin at $600 (today’s price), & will kick themselves for not buying at $1000

— Josh Constine (@JoshConstine) November 18, 2013

bitcoin frenzy time again, find yourself on this chart pic.twitter.com/ogKimOY6DR

— Kriek Jooste (@kokey) November 18, 2013

Inevitably, with $1,000 unable to buy even two Bitcoins, there’s the suggestion that what we’re really seeing is a bubble, with the cryptocurrency just days away from a spectacular tumble. But Garrick Hileman, economics historian at the London School of Economics, told CoinDesk that its unlikely to be a bubble. He admits that there’s a certain amount of ‘hype’ about Bitcoin right now, and says that it’s going to need more regulations if it’s really to go mainstream:

“The lack of legal clarity is arguably the single most important issue facing bitcoin right now,” said Hileman. “For example, banks are scared of bitcoin, and reluctance by banks to work with the growing bitcoin ecosystem is a significant barrier to wider adoption.”

photo credit: btckeychain via photopin cc