By Jemima Kelly
LONDON (Reuters) - Digital currency bitcoin hit its highest levels in more than three years on Thursday and came within $3 of an all-time peak, on speculation that the first bitcoin exchange-traded fund (ETF) is set to receive approval from the U.S. financial regulator.
Traditional financial players have largely shunned the web-based "cryptocurrency", viewing it as too volatile, complicated and risky, and doubting its inherent value.
Having already risen about 17 percent this year, it added 3 percent more on the day to hit $1,160 per bitcoin on Europe's Bitstamp exchange, just shy of an all-time high of $1,163 reached in November 2013 (BTC=BTSP).
Some analysts say regulatory approval of a bitcoin ETF would make the currency relatively attractive to the often more cautious institutional investor market.
Three ETFs that track the value of bitcoin have been filed with the U.S. Securities and Exchange Commission for approval.
The SEC will decide by March 11 whether to approve one filed almost four years ago by Cameron and Tyler Winklevoss. If approved, it would be the first bitcoin ETF issued and regulated by a U.S. entity.
"If approved this would certainly give a dramatic condoning of bitcoin by the authorities and powers that be," digital currency analytics firm Cryptocompare CEO, Charles Hayter, said.
"Perhaps key would be the institutional money which would flow into bitcoin. This would bring a certain amount of stability eventually but could see short-term exuberance by retail traders," he said.
Over the past year, bitcoin's biggest daily moves have been about 10 percent - very volatile compared with traditional currencies, but far lower than the daily swings of up to 40 percent seen in 2013.
Bitcoin climbed 125 percent in 2016, outperforming every other currency, as it did every year since 2010 bar 2014. The S&P 500 stock index rose 9.5 percent last year.
(Editing by Louise Ireland)