Has the bitcoin fever broken?
Bitcoin prices plunged sharply to below $11,000 on Friday, shedding a third of its value in just 24 hours, according to data from CoinDesk.com. It later rebounded slightly to around $12,000 -- but that's still a stunning 25% less valuable than bitcoin was Thursday morning.
Prices had approached $20,000 as recently as Sunday.
The price drop comes on the back of a few days of bad news for bitcoin, which has still soared by more than 1,000% since the start of the year.
On Thursday, a bitcoin spinoff called bitcoin cash was suspended from one of the most popular exchanges after possible insider trading.
Related: What is bitcoin?
Meanwhile, the U.S.'s markets regulator halted trading in a red-hot bitcoin stock.
Earlier in the week, a South Korea-based virtual currency exchange was forced to close its doors after falling victim to two attacks by hackers in the space of a few months.
The incidents have raised questions about the reliability of cryptocurrency markets, which aren't regulated by governments or central banks.
But some argue bitcoin is just taking a breather -- albeit a big one -- after a furious 2017.
Related: Huh? Tea-maker to become blockchain company. Stock soars
"A correction like we are witnessing today is hardly surprising," said Dave Chapman, managing director of Hong Kong cryptocurrency trading platform Octagon Strategy.
Amid the turbulence Friday, one of the most popular cryptocurrency exchanges, Coinbase, said buys and sells might be "temporarily offline" due to high traffic.
The plunge threatens to take the shine off what's been an incredible year for bitcoin. This time last year the virtual currency was worth less than $1,000.
The rally has been driven partly by the expectation that more and more mainstream investors will begin trading it.
Earlier in December, two major U.S. financial exchanges launched trading in bitcoin futures, which will help give it more clout with big, institutional investors.
Related: Looking to sell bitcoin? It's complicated
Bitcoin's dizzying ascent has prompted a number of high-profile figures in finance and economics to sound the alarm, cautioning that the currency's boom is simply a huge bubble.
Among them are outgoing Federal Reserve Chairwoman Janet Yellen, who described virtual currencies as "highly speculative."
However, Shane Chanel, an adviser at Australian investment firm ASR Wealth Advisers, thinks investors could start shifting their focus to virtual currencies other than bitcoin over the coming months.
"I feel the cryptocurrency madness is only beginning," he said.
CNNMoney's Jackie Wattles contributed to this report.
As the price crashes 20%, it appears to confirm what everyone – from the Governor of the Bank of England to FCA chief Andrew Bailey - has been saying for some time; Bitcoin is a big ol’ bubble and it’s going to burst. But is it worth considering the other side of the argument. Is there any chance – any at all – that Bitcoin isn’t a bubble?
I recognise that the finest minds have said that Bitcoin is a bubble and that it displays all the bubbliest of bubbly qualities – a rapidly rising share price based on limited underlying business, plus cab drivers and your brother in law are talking about it.
The alternative argument is that it unquestionably serves a purpose. In a recent paper, investment group Payden & Rygel said: “The birth of bitcoin marks the arrival of a novel economic institution—just like the emergence of nation-states, joint stock corporations, private clubs, or stock markets before it.”
Their view is that the entire point of bitcoin is to create a form of ‘digital cash’ for use in the digital world. They say: “Buying stuff on the internet is more of a challenge. Cash payments? Impossible. And credit card online purchases present plenty of frictions, too. Often one needs to re-enter the card and cardholder information each time one makes a purchase. Worse, transaction fees are high and many people around the world don’t own credit cards.
“These are the problems bitcoin sought to remedy. The world needed a way to make peer-to-peer, “cash-like” payments online. In 2008, the pseudonymous bitcoin creator Satoshi Nakamoto wrote in a paper detailing the idea behind bitcoin that, while “costs and payment uncertainties can be avoided in person by using physical currency...no mechanism exists to make payments over a communications channel without a trusted party.”
Its purpose may be even broader. In a recent speech, economist Dr Pippa Malmgren, said that governments with enormous debt problems had a number of choices: they can rein in public services, which is a tough call politically; they can hope for inflation, which brings social problems; they can say they won’t pay their creditors, or they will pay their creditors less. An alternative option is to completely abandon the system of accounting and money and start again. Wacky? Yes. But it has been done before: In 1834, tally sticks were replaced with paper money.
Bitcoin is this alternative option. For governments and central banks, there is a real advantage. It makes it easier to implement extreme monetary policy, such as negative interest rates, because people can no longer squirrel cash under their beds.
At the same time, many have suggested that its only real purpose is as a money-laundering tool. For Jeroen Bos, fund manager at Church House Investments, this is part of the reason the price could remain high: “For a money launderer, it is of great interest that the price of Bitcoin is as high as possible in order to facilitate ever-increasing amounts of money; it clearly works in their favour to have the price at the highest possible level. It is not a store of value for them, just a reference price. Art is often used for money laundering, especially paintings, as it is much easier to launder money with a £10m painting than it is with a painting costing £500.”
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3. Bitcoin Cash Confusion on Coinbase
On Tuesday, Coinbase announced it would support buying, selling, and trading Bitcoin Cash (BCH) on its platform. Since the August fork, there has been major community in-fighting among the BCH and BTC camps regarding which is the "true" Bitcoin. Point being: energy is high around this discussion. Many have speculated that BCH would end up on Coinbase, but even conservative estimates in crypto circles were January 2018.
So it's no surprise that the noticeable and seemingly out-of-the-blue gains made in BCH in the days and hours leading up to the announcement caused some on social media to cry "insider trading." This resulted in Coinbase shutting down BCH trading within minutes to launch an internal probe into the possibility that insider trading occurred.
By the next afternoon, BCH was in full force again on Coinbase. But the impact might have been deeper felt than we initially realized. Many have at best a passing understanding of the differences between BTC and BCH, and seeing BTC prices drop so sharply when BCH jumped onto the scene—as well as BCH's perceived volatility—might have left a larger stain in their minds on the broader concept of cryptocurrency. And even for those who didn't pay too much attention to the hullabaloo, it might have just amounted to extra, unwanted confusion to keep them from participating further.
4. Market Manipulation
We also have to entertain the possibility that foul play is afoot. What would that look like?
A recent report in Bloomberg revealed that a group of 1000 investors own 40 percent of all Bitcoin. This means that—if even some among that number were acting in concert, they would have the potential to manipulate the market to their whim. These "whales"—investors, hedge funds, and otherwise with enough stake in the crypto market to tip the scale—could easily have engaged in "painting the tape" (creating the appearance of high transaction volume by simply selling and re-selling back-and-forth on small margins) to inflate the value of Bitcoin.
Why would they do that? So that they could sell off at the highest possible price before inducing a crash by selling off mass amounts of their Bitcoin stock. Of course, this can only work so far unless others begin to take notice and sell their own Bitcoin off; that's where the influx of new traders comes into play. By essentially scaring fair-weather fans with FUD ("fear, uncertainty, and doubt) who started buying in on the crypto hype without much study of the market, whales stand to make off like bandits. How? By selling off at record highs, dropping the market to record lows, then buying back in.
This is made even more appealing with the launch of bitcoin futures trading on Cboe and CME, which sets these players up to short the market.
5. Hacking & Regulation
Earlier this month the SEC halted PlexCoin on charges of being an ICO scam, and this week it reportedly suspended trading in The Crypto Company over "concerns regarding the accuracy and adequacy of information" and stock manipulation. Meanwhile, Youbit, the popular South Korean exchange, announced its closure on Dec. 20 after being hacked (purportedly by North Korea), losing 17 percent of all assets.
As an added note, the 'insane' energy costs associated with Bitcoin mining continue to garner negative press as we move into the new year.
There is a chance that the general concern created in these developments has scared off potential investors and even caused existing participants to cut their losses.
6. The Bubble Was Real & Crypto Winter Is Coming
Of course, there could be some truth to all of the above, and together are amassing to the bubble pop that many have been warning users about for months.
The argument against this being a sign of crypto winter is that we've seen this degree of volatility in Bitcoin all throughout 2017 (and even prior). The difference now is that the sheer volume of players is a full exponent greater than it's ever been—and many new participants have no experience navigating these types of markets, making them more sensitive to the down moments.
If we are entering the crypto winter, the past eight years of Bitcoin has revealed two things: 1) that Bitcoin always bounces back—and with it, a whole roster of cryptocurrencies (with inevitable casualties along the way), and 2) the demand for decentralized currency and blockchain technology is here to stay. Some might urge you to cut your losses now before the supposed winter blusters in harder. Others might say it's just another hump in the road.
Editor’s Note & Disclosure: The author participates in cryptocurrency markets. Neither the author nor Forbes endorses participation in any token sale or cryptocurrency investment, all of which have significant inherent risk. Seek advice from a financial advisor as well as do your own due diligence before considering investment.
Cryptocurrency bitcoin tumbled below $14,000 briefly on the Bitstamp exchange on Friday, down roughly 30% from its record top near $20,000 set at the start of the week.
It was last down 7% at $14,499 but fell as much as 14.7% earlier in the Asian day.
The cryptocurrency, which was at about $1,000 at the year’s start, had surged to a record high of $19,666 on Sunday in the lead up to exchange giant CME Group’s launch of its bitcoin futures. It has since lost about a third of its value.
“Keep in mind that bitcoin has gone up a lot this year, so a correction is always likely,” said Shane Chanel, equities and derivatives adviser at ASR Wealth Advisers in Sydney.
Bitcoin‘s success brought cryptocurrencies to the forefront and has also boosted the profile of its rivals, which offer alternatives to bitcoin.
“A lot of the capital is flowing from bitcoin into alternative coins. You’ve seen companies like Verge and Ripple, which are over 400% in the last week,” Chanel at ASR Wealth Advisers said.
Verge and Ripple are among an array of cryptocurrencies that both emulate and compete with bitcoin.
Stephen Innes, head of trading in Asia-Pacific for retail FX broker Oanda in Singapore, said that there have also been moves out of bitcoin into Bitcoin Cash, a clone of the original cryptocurrency. Oanda does not handle trading in bitcoin.
“Most of it is unsophisticated retail traders getting burned badly,” Innes said on bitcoin‘s recent retreat.
Bitcoin is known to go through wild swings. In November, it tumbled almost 30% in four days from $7,888 to $5,555. In September, it fell 40% from $4,979 to $2,972.
“Trading in bitcoin is akin to gambling, so its movements don’t follow logical patterns,” said Takashi Hiroki, chief strategist at Monex Securities in Tokyo.
“Unlike equities and bonds, it is not possible to calculate expected returns on bitcoin, so buying it becomes a gamble rather than an investment.”
While CME and its rival Cboe Global Markets move to list bitcoin futures has given the digital currency some perceived legitimacy, some policymakers remain skeptical.
South Korea’s Financial Supervisory Service said on Tuesday it does not consider bitcoin and other cryptocurrencies to be currencies of any kind.
Japanese Finance Minister Taro Aso said on Tuesday that bitcoin had not been proven as a credible currency.
