PLUNGE: Buyers panic before virtual currency markets stabilize
You can’t exactly say that bitcoin was burning a hole in anyone’s pocket, but the virtual currency burned a hole in quite a few hearts Friday when it plunged 30 percent in less than 24 hours after defying gravity for the past few months.
Many skeptics of the virtual currency, which operates with no government or company in charge, have predicted that it was
in bubble territory and due for a collapse.
Still, the drop to around $12,000 a bitcoin from around $17,500 was enough to set off a panic among buyers, even while stock market investors remained calm and much of the world, unaware that bitcoin exists, was oblivious to the uproar. It later made up much of that ground, and slumped 9.5 percent to $14,042 Friday, according to the tracking site CoinDesk.
On Reddit, the online forum visited by many bitcoin followers, people posted phone numbers for suicide hotlines for bereft investors. A popular service that sells bitcoin to many individual investors went down, overwhelmed by orders.
“If someone is depressed by the sudden drop in price, remember that many of us are going through the same thing,” read one post on Reddit, which got more than 400 responses. “Please don’t think nothing crazy. You can use my thread to vent.”
Bitcoins can be used to pay for things online, but they have mostly been treated as an investment because there is a cap of 21 million on the number of bitcoin that will ever be released. The records of all bitcoins are maintained by a network of computers around the world.
For a time, bitcoin was known as the currency of drug dealers and other bad actors skulking on the internet. In recent months, hedge funds and ordinary investors around the world have piled into bitcoin, lured by the promise of a borderless digital investment with no one in charge. That has pushed the price of bitcoin up from $1,000 at the beginning of the year to more than $19,000 this week, with its run-up raising comparisons to the Dutch tulip mania of the 1600s and the late 1990s dot-com boom.
Yet when the virtual currency, which is highly volatile, experienced its fall late Thursday and early Friday, many of its new fans were unprepared. The downturn hit not just bitcoin, but almost every other virtual currency that has soared over the last year.
Vadim Semenov, 24, a programmer in New York, had maxed out the credit lines on two credit cards to buy $35,000 of bitcoin on Monday, when the currency’s price was briefly above $19,000. Bitcoin’s dive left him feeling unmoored Friday morning.
“I panicked a lot, and was checking everything to find news about why it is dropping,” he said.
By late Friday morning, he had decided to sit tight. And by Friday afternoon, the virtual currency markets had regained some of their composure, leaving the price of bitcoin down from earlier in the week — but still 1,200 percent higher than where it began the year.
For people who have been loudly saying that bitcoin is a bubble or even a fraud of some sort, Friday’s jolt was a vindication.
William Galvin, the Massachusetts state securities regulator who has cautioned investors about bitcoin in the past, put out another warning Friday.
“Bitcoin is just the latest in a history of speculative bubbles that most often burst, leaving the average investors with a worthless product,” he said.
The Securities and Exchange Commission put out a statement last week warning investors to be careful with digital currencies.