Bitcoin bubble burst? Currency suffers dramatic correction

The peer-to-peer currency, which has quadrupled in value in recent weeks, lost more than 60 percent of its value before a slight recovery.

Steven Musil Night Editor / News
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Bitcoin experiences dramatic correction of 60 percent before slight recovery. (Click for larger image.) Bitcoincharts.com

After a meteoric run-up in the valuation of Bitcoin in the past month, the virtual currency suffered a dramatic correction today, losing more than 60 percent before mounting a bit of a recovery.

The peer-to-peer currency, which has quadrupled in value in the past four weeks, traded as high as $266 per Bitcoin today before plummeting to $105. It recovered to trade at $145 as of this writing, a one-day loss of 37 percent. Despite today's losses, Bitcoin is still up more than 1,000 percent in the past three months.

Today's drop came amid another distributed denial-of-service attack on Bitcoin exchanges Bitstamp and Mt. Gox, according to TradeHill, another Bitcoin exchange. "There are connectivity issues to external exchanges. We are continuing to execute internal orders normally, but routing to external orderbooks is not possible at the moment," the San Francisco-based exchange wrote on its home page.

Bitcoin's value dropped $30 in one day last week after Mt. Gox, the world's largest Bitcoin exchange, was the target of a "major" DDoS attack that it said created "its worst trading lag ever."

Bitcoincharts.com, which provides financial and technical data on the platform's performance, was also apparently experiencing connectivity issues and 502 errors before ultimately posting a message that it was "down for maintenance." However, Bitcoin denied it was the target of a DDoS, telling CNET it "wasn't prepared for so many users."

The decentralized currency, which was established in 2009 to avoid the prying eyes of law enforcement officials, has grown in popularity in recent months thanks largely to financial uncertainty in Europe and nascent investor curiosity. But the platform also has been the frequent target of hackers who are allegedly trying to disrupt trade execution to manipulate the currency's value.

"Attackers wait until the price of Bitcoins reaches a certain value, sell, destabilize the exchange, wait for everybody to panic-sell their Bitcoins, wait for the price to drop to a certain amount, then stop the attack and start buying as much as they can," the Japan-based exchange said in a statement. "Repeat this two or three times like we saw over the past few days and they profit."

While the platform has proved popular lately with investors, it also has been a frequent target for criminal activity including thefts, hacks, and scams. Nearly a quarter of a million dollars was stolen in one such virtual heist last year. A hack at Instawallet earlier this month forced the Bitcoin wallet company to suspend its service "indefinitely."

Update, 4:24 p.m. PT with information on connectivity issues with Bitcoincharts.com.