"Given so many new participants know very little about the technology, that's even more dangerous as they are taking on a serious amount of risk.

"And as such, the added congestion means bitcoin is not currently functioning as originally designed."

Given bitcoin is undefined in law, the Australian Securities and Investment Commission is unable to provide investor protection or investigate losses, and is watching on in resignation as thousands of Australians sign up every day to local exchanges to ride the extreme volatility.

Transaction times on some of the major exchanges have stretched out into days and soaring fees are making smaller payments uneconomic.

Rather than trade directly with fiat currencies, bitcoin was designed as a medium of exchange itself. The on-ramp, off-ramp nature of the current speculative frenzy ignores the basic protocol and is mimicking the existing financial system.

Trading volumes ballooned out into the billions of dollars this week on the top five exchanges and have pushed the bitcoin market capitalisation out to $US288 billion.

"The blockchain is totally choked up at the moment and the fees can be ridiculous," said Asher Tan, chief executive of local exchange Coinjar, which is seeing thousands of new customers signing up every day.

"We have so many new people coming in and while we have set limits and can manage risk to a point, it's hard to ascertain whether these new people understand what they are buying.'


But Mr Tan said the transactions will definitely eventuate, but there might be significant delays as the blockchain verifies the millions of orders.

"So while there may be some slowdowns, both operationally for exchanges and on the blockchain, it's the uncertainty of waiting, especially for new users, which may exacerbate the situation," he said.

Both the Reserve Bank of Australia and the Australian Securities and Investments Commission this week warned against the "speculative mania" that has gripped the cryptocurrency and that "consumers should definitely approach bitcoin with caution."

US Federal Reserve chair Janet Yellen maintained bitcoin was "not a stable source of value and doesn't constitute legal tender.'

At her last press conference as leader of the US central bank, she added: "Undoubtedly there are individuals who could lose a lot of money if bitcoin were to fall in price, but I really don't see that as creating a full-blown financial stability risk."

Regulators and exchanges, while they have had discussions about decentralised crypto-assets, have not formalised a way to protect investors who stand to lose their money should the bubble pop.

The concentration of bitcoin ownership - 40 per cent of the current supply resides in just 100 wallets - also mean the market is susceptible to destabilising whale trades.

But no one knows when the bubble might pop.


Speculative investors are nervous they won't be able to pull out their money should the bitcoin price collapse.

"I've had to wait almost 48-hours before my crypto sale went through this week," says Brian Hannigan, a real estate agent based in Sydney, who bought in two months ago.

"I was really stressed during that time, not knowing if the money would come through. I know there's kind of no way to get it back if it just disappears."

Exchanges are showing signs of extreme stress. Coinbase, the world's largest wallet provider, froze under the weight of traffic on Tuesday, leaving more than 10 million customers unable to access their funds.

At the same time, Bitfinex, the largest global exchange by trading volume, says it is under a constant denial-of-service (DDoS) attack, meaning floods of fake online requests are crippling its services and taking down its website.

The top three exchanges out of more than one hundred – Bitfinex, GDAX and bitFlyer – are home to more than 60 per cent of all trading, according to data provider bitcoinity.

While bitcoin has dominated headlines for its absurd price behaviour in recent weeks, companies and developers around the world are experimenting with the new technology meaning long after the hype has died down, bitcoin is likely to stay relevant.

"Bitcoin is just overrun with the trolls and the money grabbers and the scammers and the pyramid schemes at the moment," said Mr Antonopoulos.

"But underneath all of that noise is a wonderful community of intelligent people who are not motivated by money and who are committed to this decentralisation project. That heartens me amid all of this."