The bitcoin exchange market price of bitcoins in USD has fallen—and fallen hard. After peaking at $266, prices plunged Wednesday morning. There was a strong late rally, such that some data providers listed the “close” around $165. But the cryptocurrency trades round the clock, and Wednesday morning’s decline continued throughout the evening and into Thursday.
As of this writing, the last price on the biggest bitcoin exchange, Mt. Gox, was $123, about -53.6% off the peak, and it hasn’t moved much from there. Why? Mt. Gox suspended trading for 12 hours to catch up with trade volume—and presumably in the hopes of quelling the panic. A similarly sized correction marked the 2011 peak. The following decline erased over 90% of bitcoin’s USD value in the ensuing months.
What are we to make of the bitcoin madness?
A few things come to mind. One, bitcoin was exhibiting classic bubble behavior and a major correction isn’t surprising. (Although, in a traditional bubble, few commentators call it such—perhaps bitcoin’s supercharged speed makes bubbles easier to spot.) Two, it’s impossible to gauge what a more rational price for bitcoin is, but it’s probably closer to the $15 at the beginning of the year than the $266 recently reached.
And finally, bitcoin is an unregulated market—a strength and weakness—and is behaving like an unregulated market. San Francisco-based exchange TradeHill said Mt. Gox and Bitstamp (another bitcoin exchange) were subject to distributed denial of service attacks yesterday, slowing trade execution to a trickle. According to Mt. Gox, which underwent similar attacks the prior week, they suspect the hacks are being launched by bitcoin investors who sell high, paralyze the exchange, wait for the price to plummet, and buy in again.