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Bitcoin takes investors on wild ride before holiday weekend

Photo illustration by Dado Ruvic/Reuters

The value of bitcoin tumbled nearly 30 percent early Friday before recovering most of its ground in the afternoon — a volatile session that tested investors who have recently sent the cryptocurrency to astronomical heights.

Bitcoin was trading at $11,833 before 10 a.m. EST, according to cryptocurrency tracker, marking a major drop for the largest virtual currency. That amounted to a nearly $4,000 dive, or 27 percent, since Thursday, and was far below its all-time high earlier this month at $19,783, according to CoinDesk, a virtual currency news site.

After 11 a.m. on Friday, Coinbase, one of the largest bitcoin exchanges in the United States, announced that it had to temporarily halt trading on its platform because of high traffic. Operations were restored by Friday afternoon, the service said.

The wild swings likely brought heart palpitations to some of the novice traders who have rushed to capitalize on bitcoin’s incredible run.

“Cryptocurrency is the Wild West of monetary systems, and people who have recently become enamored with the gambling aspect of cryptocurrency are learning their first lesson, which is they are volatile and risky,” said Ross Gerber, chief executive of Gerber Kawasaki, a wealth and investment management firm in Santa Monica, Calif.

This year alone, bitcoin has risen more than 1,000 percent. Some businesses, hoping to seize on the bitcoin mania, have even changed their names to include the word “blockchain,” the technology that undergirds the virtual currency. On Thursday, the beverage company Long Island Iced Tea said that it was renaming itself Long Blockchain. It’s stock price tripled soon after. Another company, in Britain, appended blockchain to its name in October and saw its stock price rise nearly 400 percent.

Earlier this month, the cryptocurrency joined the financial world’s mainstream when Chicago-based CME Group and the Chicago Board Options Exchange begin trading bitcoin futures — contracts that allow people to buy and sell assets at a predetermined price at some point in the future. TD Ameritrade, one of the largest retail brokerages in the country, said it would allow clients to begin trading bitcoin futures on the CBOE this week.

It’s unclear what exactly led to the dive Friday, but some experts have been highly critical of bitcoin despite its prominent rise and astounding returns, and perhaps because of its notorious volatility. UBS has called bitcoin a “speculative bubble,” and JPMorgan Chase chief executive Jamie Dimon has said that bitcoin is a “fraud” that “won't end well.” On Thursday, Bank of Japan Governor Haruhiko Kuroda called bitcoin’s price surge “abnormal,” according to Bloomberg News.

Highlighting the vulnerability of virtual currency markets, a South Korean company that runs an exchange called Youbit filed for bankruptcy this week after it lost 17 percent of its assets in a major hack. That was the second time in eight months that the marketplace had been breached.

As it has done following past dives, bitcoin began to rebound Friday afternoon. By the end of the U.S. trading day, said it was valued at $14,241.

“Society is trying to understand bitcoin, and it can be influenced very rapidly by rumors, by coverage in the media, both positive and negative,” said Christian Catalini, a professor and founder of MIT’s Cryptoeconomics Lab. Catalini said that price corrections have been common in bitcoin’s history, and since the cryptocurrency market is still small, moves by a few large players can trigger a cascade. “It’s not a very liquid market, so small events can cascade into big ones.”