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Bitcoin fell 8.7% on Wednesday, just as it approached its highest price ever, surpassing $ 19,000 (£ 14,241) for the first time since the 2017 crash.
It was joined by other cryptocurrencies in decline, all supported in recent weeks by strong demand from institutional investors.
Despite the losses, Bitcoin – which remains the most valuable and popular digital currency – has increased its value by more than 100% this year.
Some hedge fund managers have suggested it could reach $ 100,000 (£ 75,000) in 2021.
Brian Estes, chief investment manager of Off The Chain Capital, said: “I’ve seen Bitcoin increase 10x, 20x, 30x in a year. So, 5x increase is not a big deal.”
Others have warned that such predictions are outlandish.
Kevin Muir, a Canadian-based trader, said: “Any hedge fund model on Bitcoin is garbage. You can’t model a craze. Is that plausible? For sure. It’s a craze. But does anyone really have a clue? Not an opportunity. . “
Bank of England Governor Andrew Bailey recently said he was “very nervous” about people using Bitcoin to make payments.
He also warned that people who invest in cryptocurrency should be ready to “lose all their money”.
The highly volatile digital asset set a record high of $ 20,089 (£ 15,062) in December 2017.
However, in the following year its value plummeted by more than 80% to $ 3,200 (£ 2,400).
To Sky News investigation found that the fall led to the collapse of businesses, the failure of marriages and some investors defaulting on their mortgages.
Bitcoin was touted as a peer-to-peer electronic cash system when it was unveiled in a white paper in 2008, not long after the financial meltdown.
The document was written by a person or group using the pseudonym of Satoshi Nakamoto, but their identity remains unknown.
Bitcoin has a maximum supply of 21 million coins that will be gradually released between now and 2140, and fractions of them can be traded.
Some have suggested that this limited supply has contributed to the recent hikes as central banks have turned to quantitative easing in light of the coronavirus pandemic, which effectively involves the printing of new money.
The fact that Bitcoin is traded peer-to-peer at a market-determined value rather than a central bank has captured the imagination of economic libertarians, as well as criminals trying to evade law enforcement.
