A day after scaling to a record high of $19000, bitcoin today plunged more than 12 per cent in volatile Asian trading to below the $15,000 level. According to cryptocurrency website CoinDesk, the virtual currency dropped to as low as $14,566.81 just after 1:30 pm SIN/HK. On the Bitstamp exchange, it was down by 12.6 per cent at $14,500.76 as of 0530 GMT. Despite this slump, bitcoin was still up more than 30 per cent for the week.
This is not the first time when bitcoin plummeted in a short span of time. In the last week of November, Bitcoin had lost more than a fifth of its value in just 24 hours. It first touched then an all-time high of $11,395 and quickly slid to $9,000. However, it recovered quickly. This week in last two days, bitcoin rose more than $7000 that helped the currency cross for the first time another high of $19,000 mark.
Experts cite the December 10 launch of bitcoin futures by the Chicago Board Options Exchange, one of the world's biggest derivatives exchanges, a major reason behind the sharp jump. The virtual currency has soared more than 1,300 per cent since the start of the year. Last Wednesday, it was trading at $9,500. This rapid rise of bitcoin has puzzled many financial analysts and bankers. It has also intensified the debate about whether the cryptocurrency is in a bubble about to burst.
Business magnet Warren Buffett recently called it a 'real bubble'. He is not alone to caution the investors against the cryptocurrency. Garrick Hileman, a research fellow at the University of Cambridge's Judge Business School, earlier said: "What's happening right now has nothing to do with bitcoin's functionality as a currency - this is pure mania that's taken hold."
Despite these cautionary words from financial experts, bitcoin continues to rise. Proponents say bitcoin is a good medium of exchange and a way to store value, much like a precious metal. They also argue it is preferable to traditional currencies because it is not subject to central bank manipulation. The supply of bitcoin will eventually be capped at 21 million, and some 16.7 million have already been released.
But critics say that the price run-up is a bubble that has been driven mostly by speculation, leaving bitcoin vulnerable to a sharp reversal. JPMorgan Chase & Co Chief Executive Jamie Dimon famously called bitcoin a fraud in September.
Sensing that recent spurt in value of bitcoin might lure Indian investors, the reserve Bank of India on Tuesday warned the general people from investing in cryptocurrency. It said: "No regulatory approvals, registration or authorisation is stated to have been obtained by the entities concerned for carrying on such activities." This was the RBI's third warning. The bank regulator in its first earlier warnings had clearly said that any investor or trader dealing with virtual currencies will be doing so at their own risk.
(With inputs from Reuters)
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