“A correction like we are witnessing today is hardly surprising,” said Dave Chapman, managing director of Hong Kong cryptocurrency trading platform Octagon Strategy.
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.
Bitcoin prices briefly plunged below $13,000 on Friday, capping a stunning 24 hours in which the digital currency lost as much as 25% of its value, according to data from CoinDesk.com. Prices, which had approached $20,000 as recently as Sunday, bounced back to trade around $14,000 by mid-morning in London. The turbulence comes on the back of a few days of bad news for bitcoin, which has still soared by more than 1,300% since the start of the year.
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.
On Thursday, a bitcoin spinoff called bitcoin cash was suspended from one of the most popular exchanges after possible insider trading.
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.
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.