MONEY Bitcoin

Bitcoin’s Price Plummeted Over the Weekend

A woman buys bitcoins at one of Southern California's first two bitcoin-to-cash ATMs.
Lucy Nicholson—Reuters

The price of Bitcoin dropped almost 20% over the weekend, hitting a low of $290 before rebounding.

Bitcoin enthusiasts had a scare this weekend, as the price of the currency plummeted from $356 on Saturday to a low of $290 on Sunday—a drop of more than 18%, percent according to CoinDesk’s Bitcoin Price Index. The virtual currency has since rebounded to a price of roughly $330 at press time Monday, down about 13% over the last seven days.

Despite the price drop, Reddit’s r/Bitcoin, a popular gathering place for the currency’s supporters, was largely optimistic. “Who else is enjoying the firesale? Who else is picking up tons of cheap bitcoin?” asked one poster. But not everyone was confident that the price would recover. The New York Times quoted one worried user asking fellow Bitcoin fans for support. “As the price is going down, some of us are under immense psychological stress,” the post read. “Please share how you cope with it.”

Sunday’s crash was hardly Bitcoin’s first price panic, or even its most significant drop. In 2013, the currency lost almost 40% of its value between December 4 and December 7, when the price dropped from its all-time high of $1,147 to $694 in less than a week. After partially regaining those losses, Bitcoin fell 40% again from December 15 to 18, going from $879 to $522. Since the beginning of this year, Bitcoin’s price has been relatively more stable, but the descent has continued. From January through October 6 of this year, the currency has lost more than 40% of its value.

Exactly why the price cratered is subject to debate. Some have cited upcoming regulations, such as those proposed by New York’s Department of Financial Services, that will curtail the free-wheeling nature of the currency. Others have suggested that Bitcoin’s recent increase in popularity among retailers may have actually hurt its value. Paul Vigna at the Wall Street Journal theorized that because more merchants are using a service that instantly converts Bitcoin payments into dollars, all those Bitcoin sales may be driving down the price. However, as Vigna notes, such a long-term trend can’t directly explain this weekend’s sudden crash.

Bitcoin detractors have used this latest price fluctuation as a chance to take something of a victory lap. On Sunday, Paul Krugman, a longtime cryptocurrency critic, likened Bitcoin to a number of get-rich-quick schemes, from Glenn Beck’s “buy gold” ads to direct mail scams. “Bitcoin may be sold as a technical marvel, and it does indeed solve an interesting information problem,” acknowledged Krugman, but “it’s not at all clear whether solving that problem has any economic value.”

Other Bitcoin watchers say the hiccups may only be temporary. Rafael Corrales, a partner at Charles River Ventures, argued in the Times that recent Bitcoin price fluctuations are the result of its “transition stage” between between speculative vehicle and actual currency: “When Bitcoin becomes a currency, it realizes its potential.”

TIME Virtual Currency

How Bitcoins Could Put Your Finances at Risk

Virtual currencies could cause you to lose "real" money, according to a new report

The Consumer Finance Protection Bureau released a report Monday concluding that virtual currencies, such as Bitcoin, offer less protection than regular currencies and can be vulnerable to outrageous mark-ups, online scams and hackers.

In addition to publishing the report, the bureau has also added a virtual currency section to their complaint page where people who have run into problems with Bitcoin or other similar currencies can register their issues.

According to Bitcoin.com, there are more than 13 million units of virtual currency around the world.

TIME apps

Apple Takes a Cautious Step Towards Bitcoin

As part of its ongoing developer conference this week, Apple has added a section to its developer guidelines regarding apps for virtual currencies, including, possibly, Bitcoin.

If you look for Bitcoin apps in the App Store right now, you’ll notice most of them are tickers that monitor Bitcoin’s exchange rate. But if you use Bitcoin yourself and want to move some of that money around, there aren’t any apps that’ll let you do that just yet.

That may all change soon, provided that transmitting virtual currencies is allowed in your neck of the woods.

Apple’s new guideline reads as follows:

Apps may facilitate transmission of approved virtual currencies provided that they do so in compliance with all state and federal laws for the territories in which the app functions.

TechCrunch co-editor Matthew Panzarino posits that Apple will probably take a cautious approach with such apps:

Does this mean Apple will start accepting bitcoin apps that transmit currency in the App Store immediately? Probably not, unless there have been rulings declaring the currency “legal” in a given region. If there is no ruling, I wouldn’t count on it.

And note that Apple doesn’t explicitly mention Bitcoin by name — just “virtual currencies,” though Bitcoin is currently the highest-profile of the virtual currencies out there.

TIME Bitcoin

The IRS Will Tax Bitcoin As a Property

The IRS has announced it will categorize virtual money as property, not as currency. The move will impose significant taxes and regulations on the fledging Bitcoin market, but will likely be a boon for investors, since trading profits will be treated as capital gains

The Internal Revenue Service announced on Tuesday that it will categorize virtual currencies like Bitcoin as property, and not as a currency, a move that will impose significant taxes and regulations on the fledging market, but will likely be a boon for investors.

Payments made to employees and workers with virtual currency will be subject to federal income tax, and any payment made using virtual currency will now have to be reported in the same way as other payments made in property.

But any gains investors make from Bitcoin will be treated as capital gains, meaning they could be subject to lower tax rates.

Bitcoin ‘miners’, who verify transactions made with the virtual currency and generate new currency using complex algorithms, will now be forced to pay income taxes on their earnings, as well as payroll taxes to any employees.

Governments are beginning to step up their regulation of Bitcoin as the virtual currency struggles to achieve legitimacy.

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