But on Thursday, the yuan rose against the dollar. The reason behind this was a sell-off in the dollar due to uncertainty around the future of U.S. Federal Reserve rate hikes, as well as state intervention by China in its currency. The rise in the yuan led to a fall in bitcoin.
"We are seeing the effects of that now. It's still fairly thin trading volume though. I expect the market will find a floor and stabilize somewhere in the $850 to $1,000 range, but we'll see."
However, bitcoin beat its high on some other cryptocurrency exchanges. Whereas CoinDesk's price index takes into account many different bitcoin exchanges â individual exchanges, where users can trade bitcoin, noted their own highest prices were exceeded. Among these were one of China's biggest and most liquid exchanges, BTC China.
Bitcoin tanked as much as 23 percent Thursday afternoon after nearing an all-time high earlier in the trading day.
"It is absolutely tied to China. If the yuan goes up, bitcoin goes down," Dan Collins, CEO of technology consultancy firm CCO Global, told CNBC in an interview on Thursday.
CNBC recently outlined the reason behind the latest rally in bitcoin. One key reason has been the recent devaluation of the yuan as well as the threat of capital controls across many countries. The majority of bitcoin trade comes out of China so it has a big influence.
"Once we broke through the nominal all-time high, liquidity dried up â no shorts, no sellers, which means a volatile little bubble formed quickly," Peter Smith, chief executive of bitcoin wallet Blockchain, told CNBC by email.
Industry experts said the rapid rally in bitcoin created a little bubble which is now bursting but the long-term prospects are still positive.
Wild swings in bitcoin's price are not unusual and volatility is a characteristic of the virtual currency.
The world's largest cryptocurrency by market cap traded as low as $887.47, down from the day's high of $1,153.02, according to CoinDesk data. The high for the day was just shy of $1,165.89 set on November 30, 2013. The price has recovered somewhat from the day's low to about $973.89 at the time of publication.
Bitcoin Had a Strange Week. Does It Matter?
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