San Francisco (CNN Business)Bitcoin is on the ropes again.
After nearly touching $20,000 in December 2017, bitcoin’s value nosedived in volatile trading over the months that followed. But it has enjoyed a period of relative stability since early September, hovering between $6,000 and $7,000.
Wednesday’s drop is a sharp reminder that cryptocurrencies are still an extremely volatile investment.
While some people have managed to get rich by trading digital currencies, most investors are all too familiar with their rapid, unpredictable price swings.
The volatility comes from sudden changes in the perceived value of cryptocurrencies. Like stock prices, cryptocurrencies are affected by supply and demand — but hype also plays a major role in murky, loosely regulated markets where some investors have huge holdings.
Triggers such as alarming news reports and rumors of stricter regulation of the industry can lead to big moves in crypto markets.
Bitcoin’s plunge on Wednesday was driven in part by expectations that another major cryptocurrency, bitcoin cash, will split into two on Thursday, according to Marshall Hayner, founder of Metal Pay, a cryptocurrency payments service.
While bitcoin and bitcoin cash are separate, such events can fuel uncertainty and lead to crazy volatility across crypto markets.
Hayner said bitcoin is also likely coming under pressure from fading hopes that the market will get stronger before the end of the year.
As bitcoin’s price spiked toward $20,000 near the end of last year, some of its boosters were optimistically predicting it could go as high as $50,000 in 2018.