Bitcoin tumbled about 20% Tuesday.
The price of the volatile digital currency dipped below $11,000 around 5 p.m. ET on Tuesday, its lowest level in more than a month, according to data from CoinDesk.com.
Other popular cryptocurrencies ethereum and ripple also posted double-digit losses.
It's unclear why bitcoin fell. Cryptocurrency is a murky market with frequent swings.
"Volatility is quite common in the cryptocurrency world," said Mati Greenspan, a Tel Aviv-based analyst at investment firm eToro.
The plunge follows a Bloomberg report on Monday that Chinese officials were stepping-up measures to limit cryptocurrency trading, which is already banned on exchanges.
Related: What is bitcoin?
Investors in South Korea and Japan, the two largest cryptocurrency trading nations, were sitting on the sidelines Tuesday waiting for the regulatory uncertainty to clear before placing further bets, said Greenspan. He believes the light trading volume caused bitcoin's price to plunge.
Bitcoin approached a record $20,000 in mid-December as it launched on futures exchanges in the United States. But it has since fallen sharply on intense regulatory scrutiny.
Related: Hackers take advantage of bitcoin's wild ride
Trading is booming in South Korea, but officials began clamping down late last month.
South Korea banned opening anonymous virtual currency accounts and put in place new laws giving authorities power to shut down digital currency exchanges. Officials are currently weighing halting trading on exchanges.
--CNNMoney's Daniel Shane contributed to this story.
Many believe the cryptocurrency's utility lies in its potential to be a more efficient commodity than we already have. Proponents of bitcoin like it for a number of reasons.
First, bitcoin is decentralized, meaning no government, bank or single person has control over it; it can't be toppled by corruption at the top. It's also trivially divisible, meaning you can buy a small item like a doughnut with it as easily as you can buy a house or even a mansion. And finally, the code it's built on is open source, meaning that it's available for anyone to look at, scrutinize and even modify. This means bitcoin is constantly evolving and improving.
None of those uses is intrinsic, however. And that's a point bitcoin skeptics often make. Gold, for example, is thought to have intrinsic value because of its applications in industries like dentistry and electronics. Some people even argue that dollar bills have intrinsic value, since they can be used as kindling or to write on.
But as you break down either of those claims, it becomes clear that gold and paper money don't have that much intrinsic value either.
According to the World Gold Council, in 2016, only 15 percent of gold was used in industries. The majority went toward making jewelry and gold bars and coins — items that have value mainly because they're trusted to be valuable.
With paper money, the Federal Reserve says it costs about 16 cents to create a $100 bill.
So the rest of that hundred bucks — the remaining $99.84 — comes from the trust people place in it.
It can be hard to see the digital currency as having value because you can't hold it in your hand like you can a dollar bill or gold.
As a solution, Lee said to think of bitcoin as a digital business.
"If you ask a baby boomer, 'Can you justify the value of anything that's a digital business?' they probably don't accept that Facebook, Google, Netflix, Amazon, Apple, these are the largest companies in the S&P 500 and they're primarily digital businesses built almost purely on digital trust," said Lee.
"Anyone who thinks digital gold isn't a store value is overlooking the fact that most businesses today are built around digital trust, including the financial system."
Bitcoin breaks under weight of regulatory scrutiny
Adam Shell | USA TODAY
Speculators beware: The once-high-flying digital currency bitcoin is again feeling the heat from regulators in Asia, causing its price to go into a free fall.
Bitcoin, the best-known cryptocurrency whose skyrocketing price in the past year captured the imagination of speculators and skeptics alike, has come under intense selling pressure early in 2018.
Bitcoin careened 25% lower Tuesday after a startling gain of nearly 1,400% last year and peaking at roughly $19,500 per coin in late December.
The steep drop, which pushed bitcoin to a six-week low of $10,650 and 45% from its prior peak, was driven in part by news that South Korea, a country whose investor base has been at the epicenter of the bitcoin trading boom, was considering a crypto trading ban. That news collided with a Bloomberg report that Chinese authorities, which have already shut down local crypto exchanges, were also planning to block its residents from trading bitcoin on foreign exchanges.
The big fear is that hopes for widespread acceptance of the decentralized, stateless digital currency will be derailed by governments. Many countries see bitcoin as a threat to their traditional currencies and worry that mom-and-pop investors who speculate in bitcoin will lose a lot of money when the perceived speculative bubble bursts, bitcoin watchers say.
"I think regulation and interference by governments is one of the biggest challenges facing bitcoin," Craig Erlam, a senior market analyst at currency trading firm Oanda, told USA TODAY.
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Cryptocurrencies such as bitcoin are powered by the technology known as blockchain, which is akin to an anonymous digital ledger. Bitcoin is trying to distance itself from an early reputation as an anonymous currency used for nefarious purposes, such as money laundering and drug deals.
What the South Korean authorities are trying to do by shuttering crypto exchanges is to "shut down the betting shops," says Craig Pirrong, a professor of finance at the University of Houston. "They perceive bitcoin as a speculative frenzy that will not end well."
As a result, they are trying to minimize the future damage to investors by making it more difficult and costly to trade.
Bitcoin bulls say this isn't the first time bitcoin has gone through a rough patch to start the year, nor the first time it has been under regulatory pressures.
"The bitcoin story is not over; hold on to your bitcoin," says David Mondrus, CEO of Trive, a company that counters "fake news" with the use of blockchain technology.
American regulators are also keeping a close eye on digital currencies.
One U.S. regulator, the Commodity Futures Trading Commission, gave the go-ahead for two U.S. exchanges to start trading bitcoin futures in December. The Securities and Exchange Commission has cracked down on so-called "initial coin offerings," or digital-coin fundraising vehicles, and has yet to approve exchange traded funds that would provide easier investor access to investing in bitcoin.
But fears of a coming regulatory crackdown aren't the only reasons the value of bitcoin has been heading south, experts say. Bitcoin faces other challenges as well:
Speculators wonder: Is the big run over?
At its peak last year, bitcoin was up nearly 1,900% and traded close to $20,000 per coin as investors cheered the creation of bitcoin futures on two major U.S. exchanges, which at the time was viewed as a step toward bitcoin gaining wider acceptance.
But it has suffered a decline of about 45% since its mid-December 2017 peak, spooking speculators who were "previously buying in fear of missing out," Erlam says. Unless bitcoin rebounds, speculators might not return with the same enthusiasm, he warns.
Time is ripe for profits
Now that Bitcoin no longer is going up dramatically, many investors who bought it at much lower prices view it as a good time to sell and take profits, Pirrong adds.
Alternatives to Bitcoin gain fans
Bitcoin was an early leader in the digital currency race. But now there are 1,450 cyptocurrencies, according to coinmarketcap.com. And that means many investors are looking for the next bitcoin, Pirrong says. "Almost anyone can create a cryptocurrency," he says. "People can create substitutes."
And that gets people asking and thinking, "Why should bitcoin be so special?" Pirrong adds.
Bitcoin (BTC) saw its price plummet by more than £940 ($1300) today (Tuesday, January 16), after reports of South Korean regulators cracking down on domestic exchanges triggered a worldwide panic sell-off.
The virtual currency, which is the largest of its kind, opened on Tuesday at £9873 ($13,585) and reached a high of £9883 ($13,601), before dipping to £8857 ($12,208) – the lowest price recorded so far this year.
Bitcoin isn’t the only cryptocurrency in troubled waters, however. Ethereum (ETC), Litecoin (LTC) and Ripple (XRP) all experienced a dip in value during the same timeframe, according to CoinMarketCap data.
The situation in South Korea could be described as confused at best, with some agency officials saying they’re preparing to ban the trade of virtual currencies, while others claim the government is merely looking to regulate exchanges.
Related: Best Bitcoin alternatives
“The position is that the Korean authorities are clamping down on unregulated exchanges and exchanges that are not compliant,” explained Ran Neuner, host of CNBC‘s Cryptotrader show, on Twitter last week.
“A ban is not on the cards,” Neuner added.
Some would see this as the perfect opportunity to invest in cryptocurrencies, but don’t get caught up in the hullabaloo. They’re highly volatile and – as with any investment – you should be aware of the risk involved.
Were you burned by Bitcoin’s sudden drop in value? Let us know on Facebook or Twitter @TrustedReviews.
