BITCOIN plunged by as much as 12 percent Friday after China’s central bank urged investors to take a rational and cautious approach to investing in the digital currency, which is on track for its heaviest two-day drop in two years.

    Bitcoin had been on a tear until Wednesday, gaining more than 40 percent in two weeks to hit around US$1,139 on the Europe-based Bitstamp exchange, just shy of its all-time record of US$1,163.

    But the web-based digital currency, which has shown an intriguing inverse correlation to the Chinese yuan in recent months, plunged as the yuan soared Thursday, falling as much as 20 percent at one point.

    It continued that fall Friday, with its losses accelerating after the central bank’s warning.

    It fell as low as US$871, down almost a quarter from its peak Wednesday, before recovering to about US$900 by 1455 GMT. That still left it down 10 percent on the day and on track for its worst two-day performance since January 2015.

    The Shanghai head office of the People’s Bank of China (PBOC) noted in a statement that bitcoin prices had shown abnormal fluctuations in recent days, and said those investing in it should do so carefully, with awareness of the currency’s volatility.

    The PBOC also repeated Friday its 2013 view that bitcoin is not a currency and could therefore not be circulated as a real currency in the market.

    “This is the Chinese authorities saying: we’re watching,” said Charles Hayter, CEO of digital currency data analysis website Cryptocompare. “The relative size of the bitcoin market is minor, but trading has reached up to US$10 billion a day on the bitcoin-yuan pairs.”

    Hayter said trading between the yuan and bitcoin had made up about 98 percent of the market for the past six months, according to his analysis. Because there are no trading fees on Chinese exchanges, it is much easier to get in and out of trades and therefore creates a higher trading volume, he said.(SD-Agencies)