Bitcoin Price Rises After 21% Five-Day Decline Amid Volatility

The price of bitcoin rose as much as 12 percent today after falling by 21 percent in the previous five days to the lowest level in 11 months.

The virtual currency was up 10 percent at $340 as of 4:40 p.m. in London, according to Bitstamp data compiled by Bloomberg. The currency fell 14 percent during the weekend.

Bitcoin users must grapple with volatility in the unregulated currency even as it wins wider acceptance from mainstream businesses such as online travel-booking service Expedia Inc. and satellite-television company Dish Network Corp. Recent price declines were reinforced by the unique way in which new bitcoins are added, said Gil Luria, an analyst with Wedbush Securities in Los Angeles.

“Miners,” who authenticate transactions using the currency and record them in bitcoin’s public ledger, receive new bitcoins for their services. Because their work requires fixed investments in expensive hardware, the lower the price of the coins they generate, the more they have to sell to cover their costs.

“All this describes a negative, self-reinforcing cycle,” Luria said in an e-mail. “And bitcoin does not have liquidation value to set a bottom - not cash on the balance sheet, no hard assets.”

Unlike traditional currencies, virtual currencies such as bitcoin often have a fixed supply and can’t respond to changes in demand, making them prone to greater volatility, the Bank of England said in a report last month. By July 9, there were 41 million bitcoin wallets registered, the Bank of England said.

Nicholas Colas, chief market strategist at New York-based ConvergEx, said the murky and sometimes illicit uses to which bitcoin is put on the so-called “dark Web” may also play a role in sudden price declines.

“My best guess -- and it is only a guess -- is that a dark Web drug site or other very illegal site got taken down, and demand took a dip,” Colas said in an e-mail.