By Bloomberg
December 22, 2017

Bitcoin plunged by as much as a fifth on Friday before regaining its footing amid one of the biggest tests yet for the frenzy surrounding digital currencies.

The world’s largest cryptocurrency sank as much as 21%, briefly trading below $13,000, before recovering to near $14,000 late in the European morning. Other cryptocurrencies also tumbled, with bitcoin cash crashing 31% and ethereum losing 20% over the past 24 hours, according to coinmarketcap.com.

The losses represent a major test for the cryptocurrency industry and the blockchain technology that underpins it, which have rapidly entered the mainstream in recent weeks. Bears cast doubt on the value of the virtual assets, with UBS Group this week calling bitcoin the “biggest speculative bubble in history.” Bulls argue the technology is a game changer for the world of investment and finance. Both will be closely watching the outcome of the current selloff.

“The sharks are beginning to circle here, and the futures markets may give them a venue to strike,” Ross Norman, chief executive officer of London-based bullion dealer Sharps Pixley, which offers gold in exchange for bitcoin. “Bitcoin’s been heavily driven by retail investors, but there’ll be some aggressive funds looking for the right opportunity to hammer this thing lower.”

Read: Some Investors Think Bitcoin Could Reach $50,000 Next Year

Traders who bought the currency on futures exchanges using collateral may start facing margin calls following the price decline. Two venues launched products in recent weeks that required hefty security, with Cboe needing 44 % to clear contracts, and the CME 47%. Brokers set safety nets even higher.

“There’s no doubt people who got in on margin will face some pressure here,” Norman said by phone from London. “The volumes weren’t huge, so it won’t be a major price driver, but for those caught on the wrong side it will hurt.”

Crypto Mania

Many of the recent news stories and market moves connected to cryptocurrencies appear to carry hallmarks of the mania phase of a bubble. Long Island Iced Tea Corp. shares rose as much as 289% after the unprofitable Hicksville, New York-based company rebranded itself Long Blockchain Corp. Bank of Japan Governor Haruhiko Kuroda said on Thursday bitcoin isn’t functioning like a normal means of payment and is being used for speculation.

Read: How High Can Bitcoin’s Price Go in 2018?

Still, cryptocurrencies are attracting established players. Goldman Sachs Group (gs) is setting up a trading desk to make markets in digital currencies such as bitcoin, according to people with knowledge of the strategy. The bank aims to get the business running by the end of June, if not earlier, two of the people said.

Bitcoin was trading 9.4% lower at $13,941.10 at 6:29 a.m. New York time on Friday. It reached a peak of $19,511 earlier this month, and is still up more than 10-fold for the year.

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