Bitcoin price falls to 11-month low

Paypal's backing of Bitcoin led to a brief boost in the value of the crypto-currency

The value of one bitcoin has fallen to its lowest level for almost a year.

On Sunday afternoon Bitcoin hit a low of $290 (£181), and the virtual currency lost about 18% of its value across the whole weekend.

The crypto-currency has seen its value steadily fall since December 2013, when each bitcoin was briefly worth more than $1,100.

Economic experts put the steady fall in value down to the internal mechanics of the system used to generate bitcoins.

Money makers

Since the fall at the weekend, values have recovered. Now, according to Coindesk, individual bitcoins are worth about $330 (£263) each.

An increasing number of shops and payment-processing firms have signed up to let people use the virtual currency to pay for goods and services.

Paypal's announcement in late September that it was putting in place systems to let its merchants accept bitcoins caused a brief bump in the value of the crypto-cash, but this has now been eroded.

Some speculated that the fall was due in part to the greater number of businesses accepting bitcoins, which had led to more of the coins being in circulation, depressing prices.

However, said economic historian Garrick Hileman from the London School of Economics, the numbers of bitcoins being put back into circulation via this route was not significant enough to affect prices so markedly and for so long.

The most recent swings in value were down to speculative trading, he said, but this did not explain the long term decline.

One significant factor, he said, was the steady supply of new bitcoins introduced in to the market every day by miners. These are people who use powerful computers to carry out the complicated mathematics involved in validating transactions made in bitcoins. In return for carrying out this work, miners are regularly rewarded with newly minted bitcoins.

"Approximately every 10 minutes 25 new bitcoins are mined into existence, which works out to approximately 3,600 new bitcoins created every day," he said. "At current prices that's $1.2m in new supply coming into existence every day."

Miners converted some of their coins to pay for the power needed to keep machines running and to ensure they used the fastest computers available, he said.

"How much of this $1.2m miners have to sell to pay for these things is a closely guarded trade secret, but unless the market can absorb the new bitcoins which miners sell, the price will fall," he said.

In addition, said Mr Hileman, a whole host of other factors including regulatory concerns, competition from alternative payment systems and the strength of the dollar were all impinging on the Bitcoin world.

Not all Bitcoin enthusiasts were worried by the ongoing slide. Roger Ver, who has invested in several Bitcoin start-ups, pointed out in a tweet that those holding bitcoins had enjoyed a good year.

"For anyone complaining about the current price of Bitcoin, remember it has more than doubled over the last 12 months." he wrote. His message was accompanied by a graph of values from exchange Bitstamp, which showed this time last year the Bitcoin was worth about $120.