The price of digital currency Bitcoin has fallen by 20% in a period of wild trading since it passed the $11,000 mark a day ago. Bitcoin is now around $9,150, down sharply from the record $11,434 (£8,500) it hit on Wednesday.At its peak, Bitcoin had increased by 1,000% from the $1,000 value at which it started the year.On Wednesday, a Bank of England deputy governor warned “investors should do their homework” on Bitcoin.Unlike traditional currencies, Bitcoin is not issued by a central bank or government.What’s behind the Bitcoin gold rush?
Bitcoin crosses $10,000 milestone
The digital currency – which works like virtual tokens – has fluctuated wildly since it was launched in 2009.”It was a rollercoaster like nothing I’ve ever seen,” said Neil Wilson, a financial analyst at ETX capital in London, referring to the trading seen over the past day.Mr Wilson said the swings were “pretty large even for Bitcoin. As the numbers go up, the swings just seem to get more pronounced”.He said part of the volatility was due to small investors “with no market experience” buying and selling the coin, and also the fact that “there is no price data or history to go on”.”There is no way to discern what fair value is – it’s so incredibly speculative and it is so new and not properly understood.”‘Not a currency’Critics have said Bitcoin is going through a bubble similar to the dotcom boom, whereas others say it is rising in price because it is crossing into the financial mainstream.Sir Jon Cunliffe, the Bank’s deputy governor for financial stability, told the BBC on Wednesday: “People need to be clear this is not an official currency. No central bank stands behind it, no government stands behind it.” He said it was “closer to a commodity” than a currency, with people choosing to invest and trade in it.
Bitcoins are created through a complex process known as mining, and then monitored by a network of computers across the world.A steady stream of about 3,600 new Bitcoins are created a day – with about 16.5 million now in circulation from a maximum limit of 21 million.Despite its price rise, Sir Jon said Bitcoin was “not of a size that would be a threat to financial stability” or a risk to the UK economy.Financial regulators have taken a range of views on the status of digital currencies and their risks.US regulators have moved towards treating some of them as currencies, whereas Korean regulators see them as commodities.The UK’s Financial Conduct Authority warned investors in September they could lose all their money if they buy digital currencies issued by firms, known as “initial coin offerings”.
Source: BBC News