47 SHARES Share Tweet

The price of a single Bitcoin was at $266 Wednesday morning, but throughout the day it dropped 50% and is now fluctuating wildly. What has caused this abrupt drop in price?

Bitcoin – the virtual currency that has exploded in value over the past few months – went through a major correction Wednesday. Peaking at $266, it abruptly dropped in value down to a low of $105, according to the largest Bitcoin exchange, Mt. Gox. Later in the day the price was slowing rising again.

What caused this 50% drop? Skeptics and supporters of Bitcoin will point to many different factors, but there are two they could likely agree on:

Substantial speculation. With all the recent media attention, and the steady rise in value, many new investors (both small and large) have joined the Bitcoin market recently, speculating that the virtual currency would continue to rise. As soon as the price began to drop, many of these newcomers panicked and sold as quickly as they could. Mt. Gox lag. The largest Bitcoin exchange, Mt. Gox., has become notorious recently for their service having substantial lag. It isn't clear if the site was the target of a specific DDoS attack, or if they simply had so many orders that they couldn't keep up with them. Either way, as the selling frenzy continued throughout the day, the lag got worse – reaching as high as 40 minutes at times.

While skeptics will point to this drop as evidence that Bitcoin isn't really a viable currency, this correction only puts Bitcoin back to the same prices as – a week ago! At the beginning of the year, Bitcoin was at $14, so the current change in value does little to undermine the case for this virtual currency.

Indeed, many Bitcoin users at the popular subreddit /r/Bitcoin are unfazed by the drop in price. A comment from user anotherblog is typical of many:

This is just the market venting some pressure after these huge gains. To be honest I'm glad it's happening now. If it recovers, it will demonstrate resilience in the market and give confidence to future buyers and current holders that they don't need to panic sell, reduce the chances of a crash in the future.

Whether you are a user or a spectator of Bitcoin, one thing is certain – it has already been a wild ride.