Bitcoin plunged another 12 percent on Friday after China's central bank urged investors to take a rational approach to the digital currency, which has is on track for its heaviest two-day falls in two years. Bitcoin neared its all-time high Thursday, with the surging digital currency tipped to become a new safe haven asset as the world grapples with growing economic uncertainty. The unit broke the $1,100 barrier on the Bitcoin Price Index, an average of major exchanges, to continue a dizzying rise that made it the best performing currency of 2016.
Bitcoin had gained more than 40 percent in two weeks to hit a three-year high of $1,139.89 on Wednesday, just shy of its all-time record of $1,163 on the Europe-based Bitstamp exchange . But the digital currency - which has shown an inverse correlation to the Chinese yuan in recent months - plunged as the yuan soared on Thursday, falling as much as 20 percent at one point, before closing the day around 10 percent down on the day.
On Friday it fell to $887, having lost almost a quarter of its value since Wednesday's peak. Bitcoin prices had showed abnormal fluctuations, the Shanghai head office of the People's Bank of China (PBOC) said in a notice. It stressed bitcoin is not a currency and cannot be circulated as a real currency in the market. It has fluctuated wildly since it was created in 2009 and lost three quarters of its value when it plummeted from its previous BPI high of $1,165.89 in 2013.
And news of a major bitcoin theft by hackers in August sent its price plunging by more than 20 percent. But analysts say its volatility will ease as volumes grow and point to a strengthening US dollar and tightening currency and capital controls, as well as the rise of the digital economy, as major factors behind its appreciation. In particular, the chaotic withdrawal of high value bills in India and restrictions on buying foreign currency in China as the yuan slides against the dollar have stoked demand, analysts say. Exacerbating the rocketing demand is a tightening supply of fresh bitcoins.
The currency was always meant to be finite, and more than three quarters of the planned 21 million bitcoins have already been 'mined'. Encrypted digital coins are created by supercomputers and then traded online or exchanged for goods and services. Vinny Lingham, a bitcoin expert and CEO of US digital identity protection startup Civic, told AFP the dwindling supply of new bitcoins, and regular currencies sliding against the US dollar as the Federal Reserve ratchets up interest rates, were pushing up the unit's value. "There are fewer bitcoins coming out and people are seeing bitcoin as a good hedge against currency devaluation in their countries, and instead of buying the US dollar, people are buying bitcoins," he said. Lingham highlighted the impact of wider geopolitical uncertainty, such as US President-elect Donald Trump's potential threat to emerging markets. He has predicted bitcoin will be worth about $3,000 by the end of 2017.
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