Well, the high didn’t last long.
Bitcoin’s dramatic rally came to an abrupt end on Thursday, when it fell by as much as 23 percent—the steepest drop since 2014. The popular digital currency’s price reached $1,140.64 on Wednesday, only to drop to a low $885.41. The swift crash has also caused bitcoin to lose more than $3 billion in market value at one point, slashing its “market capitalization”—the value of all the bitcoin in circulation—to $14.6 billion from $17.7 billion, or a drop of about 17.5%.
So what caused Thursday’s spectacular crash? The short answer is China.
Bitcoin, which has just turned eight years old, has been gently appreciating since 2016, thanks to demand from traders in China as well as other parts of the world where traditional currencies are tightly controlled. China, where majority of trading occurs, saw an increase in demand for bitcoin as the pressure on the Chinese yuan weakens.
On Thursday, however, the Chinese yuan jumped by over 1 percent in trading, which analysts chalked up to efforts by the Beijing government to discourage short-selling investors from betting on the decline of their currency.
Paul Gordon, co-founder of London-based firm Quantave, told Reuters, “Given that the yuan’s weakness over recent months seemed to correlate with bitcoin’s strength more than any other currency, it’s no surprise that bitcoin traders have reacted the way they have to the yuan’s sudden strength today.”
Of course, this doesn’t spell doom for digital currency. According to experts, the recent yuan rally is likely to be temporary.
“[Traders should] see this quick blip as a buying opportunity,” Harry Yeh, of hedge fund Binary Financial, told Quartz. “Expect further upside for bitcoin. Now is the time to buy and hold, because the one thing we are certain of is there will be more uncertainty.”
Current bitcoin price
Bitcoin’s price has recovered on Friday, trading at $989.97.