After week of downward spiral, bitcoin plunges to below $12,000

Bitcoin plunged by 30 per cent to below $12,000 on Friday as investors dumped the cryptocurrency after its sharp rise to a peak close to $20,000 prompted warnings by experts of a bubble.

A bitcoin continued a steady downward spiral that has continued through this week, all but two of the top 100 cryptocurrencies were significantly down on Friday morning.

After falling to as low as $11,159, bitcoin recouped some losses to trade above $14,000 on the Bitstamp platform, down 9 per cent on the day. It is down around 25 per cent this week, its largest weekly loss since April 2013.

A week that had been touted as a new era of mainstream trading for the digital currency in fact proved brutal when bitcoin futures debuted on CME Group Inc, the world's largest derivatives market, on Sunday.

The number one cryptocurrency hit a record high of $19,857 earlier this week. It's now down 33 per cent for the week, and 41 per cent for the month. Scanning the prices of the top 100 cryptocurrencies on CoinMarketCap, those percentages are echoed for all the altcoins over the last 24 hours.

The tumble comes even as the financial markets are jumping in more and more every day. Coinbase, one of the most prominent trading apps in the US, added close to a million users in November - 100,000 of them joined on a single day. That number is surely now higher, as processing of transactions has slowed to a crawl.

Friday's fall bled into the US stock market, where shares of companies that have tied their fortunes to bitcoin or blockchain - its underlying technology - took a knock. Long Blockchain Corp, Overstock.com Inc, Riot Blockchain Inc and Marathon Patent Group Inc lost between 2 per cent and 15 per cent.

The biggest and best-known cryptocurrency has risen around 20-fold 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 it has fallen each day since.

While the mainstream news has kept track of every new record set by bitcoin, the really big money this year has been in the altcoins that don't get as much attention, Gizmodo points out. At its peak this week, bitcoin was up around 2,000 per cent for the year, while Ethereum was up 7,400 per cent on Friday, and Litecoin was up 5,500 percent. Newer, more obscure offerings like IOTA and Ripple have had similar crazy runs.

In the futures market, bitcoin one-month futures on Cboe Global Markets were earlier halted due to the steep price drop, while those trading on the CME hit the limit down threshold.

"The crypto markets have experienced several flash crashes over the past few years but we do believe there has been some overvaluation in the market, particularly over recent months," Jamie Burke, chief executive officer at venture capital firm Outlier Ventures, told Reuters.

"It's much more likely this is a natural correction following over-exuberant market sentiment."

On Friday, Mike Novogratz, the former macro hedge fund manager at Fortress Investment Group, told Bloomberg he had halted plans to launch a crypto-currency hedge fund.

"We didn't like market conditions and we wanted to re-evaluate what we're doing," he told Bloomberg.

Warnings about the risks of investing in the unregulated market have increased - Denmark's central bank governor called it a "deadly" gamble - and there have been worries about the security of exchanges on which cryptocurrencies are bought and sold.

South Korean cryptocurrency exchange Youbit said on Tuesday it is shutting down and is filing for bankruptcy after it was hacked for the second time this year.

Coinbase, a US company that runs one of the biggest exchanges and provides digital "wallets" for storing bitcoins, said on Wednesday it would investigate accusations of insider trading, following a sharp rise in the price of a bitcoin spin-off hours before it announced support for it.

On Friday, Coinbase said it had temporarily suspended buying and selling of bitcoin due to high traffic.

As some rival cryptocurrencies slid along with bitcoin, the total estimated value of the crypto market fell to as low as $440 billion, according to industry website Coinmarketcap, having neared $650 billion just a day earlier.

But other cryptocurrencies rose this week, with investors moving into cheaper digital coins rather than cashing out of the sector.

Ethereum, the second-biggest cryptocurrency by market size, soared to almost $900 earlier in the week, from around $500 a week earlier. Ripple, the third-biggest, has more than quadrupled in price since Monday.

Stephen Innes, head of trading in Asia-Pacific for retail FX broker Oanda in Singapore, said there had also been moves out of bitcoin into Bitcoin Cash, a clone of the original cryptocurrency. Oanda does not handle trading in bitcoin.

"Most of it is unsophisticated retail traders getting burned badly," Innes said on bitcoin's recent retreat.

Bitcoin is known to go through wild swings. In November, it tumbled almost 30 per cent in four days from $7,888 to $5,555. In September, it fell 40 per cent from $4,979 to $2,972.