Bitcoin Plunges, Loses One-Fifth of Value

Bitcoin plunged to one-fifth of its value today, falling to about $913.76 per coin at about 2:10pm this afternoon, dashing the post-new-years hopes of many speculators.

The cryptocurrency had been up higher earlier in the week, trading at more than the $1,000 mark for the first time in four years, but it has now fallen below that level once more.

From the end of September through yesterday — just prior to the plunge — bitcoin had increased nearly 100%. It was apparently buoyed by increased interest from Chinese investors, who had leaped to push capital out the yuan was weakening.

But on Thursday the yuan once more rose on its biggest two-day increase since 2010 when record-keeping started. This happened in the middle of the Chinese government’s efforts to stop capital from leaving the country and after overnight borrowing costs in Hong Kong leaped to a record as high of more than 100%. That action squeezed investors who had earlier bet that the yuan would fall.

The exact reasons for bitcoin’s rise and fall are unclear, but some analysts are suggesting that the rise was caused by Chinese investors looking to move their assets out of China ahead of rumors of devaluations of the renminbi. This theory is supported by trends in the renminbi Thursday that coincided with bitcoin’s sharp drop. The renminbi rallied 2.5% against the U.S. dollar, posting its biggest two-day gains ever. China’s central bank is also warning investors to proceed with caution when investing in cryptocurrencies such as bitcoin and they met with the representatives of a major bitcoin trading platform in China, BTCC, according to reports from Reuters. Those actions appear to have shaken confidence further.

The yuan’s rise is also putting pressure on the US dollar, which also has fallen against other foreign currencies.