The price of the virtual currency slumped nearly 20 percent on Friday amid expanding losses that set Bitcoin on track for its worst week since 2013 after peaking close to $20,000 last Sunday.
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Bitcoin plunged below $13,000 (€10,970) on Friday, trading as low as $12,500 in Britain, after opening at $15,600. The crash of almost 20 percent means the cryptocurrency has lost around a third of its value in just five days.
Other major digital currencies also tumbled, according to OnChainFX which tracks the digital assets. Ethereum, the second-largest cryptocurrency by market capitalization, was 26 percent lower at $641.65 while "Bitcoin cash" fell 38 percent.
Charles Hayter, founder and chief of industry website Cryprocompare in London, described the downturn as a change in "emotional sentiment" that had prompted the "manic upward swing by the herd" before.
"With the end of the year in sight a lot of investors will be taking profits and saying thank you very much and closing their books for the holiday period," he said.
Bitcoin, which is biggest and best-known cryptocurrency, had seen a staggering twentyfold increase since the start of the year, climbing from less than $1,000 to as high as $19,666 on the Luxembourg-based Bitstamp exchange on Sunday and to over $20,000 on other exchanges.
But warnings about the risks of investing in the volatile and unregulated market have continued to become louder. Denmark's central bank governor called Bitcoin investment a "deadly" gamble, and the Financial Industry Regulatory Authority in the US warned investors against "potential scams" with regard to companies that are suddenly adopting Bitcoin strategies.
On the same day, the Monetary Authority of Singapore issued an advisory on investing in cryptocurrencies, warning people to act with "extreme caution" and to "understand the significant risks."
As a result of the crash on Friday, the total estimated value of the crypto market fell to as low as $480 billion, according to industry website Coinmarketcap, having neared $650 billion just a day earlier.
Bitcoin: Where it came from and where it's headed
The booming cryptocurrency has a cryptic backstory and a perplexing modus operandi. Following a year of particularly tumultuous growth, DW asks where Bitcoin will go next. Can it sustain its incredible ascent?
Image: picture-alliance/dpa/J. Kalaene
Good time to start a currency
Introduced in 2009, Bitcoin was the world's first decentralized digital currency. It quickly gained traction amid lingering uncertainty in the wake of financial crisis. Designed to be as rare as gold, Bitcoin was created to have a maximum of 21 million "coins." Initially worth just a fraction of a cent, by February 2011 the currency had gained parity with the US dollar, then it really took off.
Image: picture-alliance/dpa/J. Kalaene
An anonymous founder
The name Satoshi Nakamoto is synonymous with Bitcoin. It is said to be the alias for an unknown IT whizz who invented the cryptocurrency. But despite claiming to be a 30-something Japanese national, it is generally thought that several computer science experts created the technology behind the digital coin. One rumor even suggested that Tesla chief Elon Musk is the real Satoshi, which he denied.
Image: Reuters/AAP/B. Macmahon
So no coins then?
Instead of being printed like dollars and euros, each Bitcoin is created on a global network of computers and verified by the system rather than a bank. There are no transaction fees. The smallest amount you can buy is a "Satoshi" or one-hundred-millionth of a Bitcoin. Purchases can be made anonymously and even at digital currency ATMs. When you buy Bitcoin, it is often stored in a digital wallet.
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Complex puzzles
To ensure that not too much Bitcoin comes into circulation, a process called mining was created where blocks of transactions could only be processed once a difficult math problem was solved by geeks. The puzzles are becoming so complex that bigger and bigger computers are being utilized to decipher them. That's led to concerns about the amount of electricity used to handle Bitcoin transactions.
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Are Bitcoin fortunes legit?
Due to its anonymous nature, Bitcoin's success is likely being fueled by organized crime, including money laundering and the purchase of illegal goods. The currency is also being targeted by cybercriminals. A recent hack blamed on North Korea forced a South Korean digital currency exchange into bankruptcy. Reports suggest the "Islamic State" armed group used Bitcoin to receive funds to buy arms.
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Bitcoin leads, others follow
Bitcoin is the largest of all the cryptocurrencies and its incredible rise has spawned many imitators. Other large digital cash creators include Ethereum, Zcash, Bitcoin Cash, Ripple and Litecoin. As of November 2017, their number had swelled to 1,324. Hundreds of others have attempted and failed to launch their own digital coins. The market is now coming under increasing scrutiny by regulators.
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Watch it skyrocket
2017 was a stratospheric year for Bitcoin. Worth close to $1,000 in January, some twelve months later it had scaled to an all-time high of $19,784. Despite much skepticism, the currency started to see serious interest from institutional investors. Two exchanges began Bitcoin futures trading, allowing speculators to punt on the incredible volatility in the value of the cryptocurrency.
Image: Reuters/D. Ruvic
Warnings abound
From central banks to respected investors, almost the entire financial establishment warned of a massive Bitcoin bubble, which they said can only end in disaster for holders of the digital currency. Among them was Nobel prize-winning economist Joseph Stiglitz who said Bitcoin "ought to be outlawed." Jamie Dimon, the CEO of JPMorgan Chase labeled those who buy the currency "stupid."
Image: World Economic Forum/Benedikt von Loebell
The shape of things to come?
Just before Christmas 2017, Bitcoin saw a dramatic rally, topping out at nearly $20,000 before losing a third of its value in just five days. More intense volatility followed early in the New Year, only to be reversed when it plummeted by almost half. Are we in for an even bigger rollercoaster ride if Wall Street adopts Bitcoin?
