(Reuters) - Payments company Square Inc (>> Square Inc) said it has started allowing select customers to buy and sell bitcoins on its Cash app, as it looks to tap into a craze that has sent the cryptocurrency up nearly sevenfold this year.

For the most part though, institutional investors have stayed away from bitcoin , the original and largest cryptocurrency in terms of market capitalization, despite outperforming all the world's traditional currencies.

But Square, best known for its technology that allows merchants to process credit card transactions without a cash register or expensive system, says its customers have shown an appetite for the "alt-currency."

"We're always listening to our customers and we've found that they are interested in using the Cash app to buy bitcoin," a company spokesperson said.

"We believe cryptocurrency can greatly impact the ability of individuals to participate in the global financial system and we're excited to learn more here," Square said.

Traditional investors still view bitcoin as opaque and highly speculative with potential to collapse. The currency's legitimacy has often been called into question because of its association with Silk Road, an online black market for illegal drugs.

China has already forced several bitcoin exchanges to close down, while Russia's central bank said it would ban cryptocurrency trading websites. JPMorgan Chase & Co (>> JP Morgan Chase & Company) Chief Executive Jamie Dimon has called cryptocurrency a "fraud".

None of that has deterred investors who continue to buy bitcoins, and that had attracted the attention of U.S. exchange operators.

CME Group Inc (>> CME Group Inc), the world's largest derivatives exchange operator, said last month it will launch a futures contract for bitcoin later this year.

Rival Cboe Global Markets Inc (>> Cboe Global Markets Inc) is awaiting regulatory approval for a bitcoin exchange traded fund they announced earlier this year.

Major financial firms will soon start to offer bitcoin or similar products as an investment option, with a turning-point product about six months away, Mike Novogratz, CEO of Galaxy Investment Partners, a firm that bets on cryptocurrencies said earlier this week.

Square did not say when it started rolling out the feature to customers or when it plans to make it available to all its customers.

Square's shares were up 1.8 percent at $40.44, easing after hitting a record high of $41.80. Bitcoin was up about 8 percent at $7,150.

(Reporting By Aparajita Saxena in Bengaluru; Editing by Savio D'Souza)

By Aparajita Saxena