Bitcoin, Ethereum and Dogecoin are among the cryptocurrencies that have seen a steep price volatility in the last few days. Bitcoin’s price tumbled more than 17 percent to $43,000 before paring some losses to trade down over 11 percent at $46,000. Earlier bitcoin had hit a session high of $52,948.
Smaller rival ether, the coin linked to the ethereum blockchain network, fell 11.99 percent. Meme cryptocurrency Dogecoin has fallen over 16 percent.
Just before the steep fall, Bitcoin hit its highest price since May at $52,000, while Ethereum traded traded close to $4,000. Dogecoin had also touched $0.31 per token.
However, the next day Latin American country El Salvador became the first country in the world to adopt bitcoin as legal tender. Polls show Salvadorans are skeptical about using bitcoin and wary of the volatility of the cryptocurrency that critics say could increase regulatory and financial risks for financial institutions. Still, some residents are optimistic.
On Monday, El Salvador bought its first 400 of the cryptocurrency, temporarily pushing prices for bitcoin 1.49 percent higher to more than $52,680.
Some analysts fear the move to make bitcoin legal tender alongside the U.S. dollar could muddy the outlook for El Salvador's quest to seek a more than $1 billion financing agreement with the International Monetary Fund (IMF).
After Bukele's bitcoin law was approved, rating agency Moody's downgraded El Salvador's creditworthiness, while the country's dollar-denominated bonds have also come under pressure.
The launch of Bitcoin in El Salvador ran into snags following which shares of blockchain-related firms also fell as crypto stocks were hit by trading platform outages.
Coinbase said some transactions were delayed or canceled at "elevated rates" and that "our apps may be experiencing errors." The exchange later said issues with Coinbase card swipes were resolved and that transactions were going through normally.
The Gemini exchange said it temporarily entered a full-maintenance period to address an exchange-related issue that caused performance trouble. Coinbase shares slid 4.02 percent.
Anything related to cryptocurrencies appeared to suffer. Cryptocurrency miners Riot Blockchain fell 7.38 percent and Marathon Digital Holdings slipped 7.76 percent.
Shares of MicroStrategy Inc, a BTC buyer and business intelligence software firm, fell 7.64 percent.
But, the major focus was on El Salvador, where the government had to temporarily unplug a digital wallet to cope with demand.
Some analysts attributed such market volatility to El Salvador's implementation of Bitcoin as legal tender affecting user decision to buy in anticipation of the implementation and then selling it off.
“When this move was first announced, it didn’t have nearly as big of an impact on price as some may have expected it might, possibly because El Salvador’s population is less than New York City’s, but also because the announcement was light on details and people were on the fence about how this was going to be implemented,” Leah Wald, CEO at Valkyrie Investments told CNBC.
“Transaction fees, processing times, and other hurdles also make this feel more like a beta test rather than a solution to many of the problems plaguing the country’s poor,” Wald added.
Others disagreed with this reasoning. David Gerard, author of 'Attack of the 50 Foot Blockchain,' told the Associated Press (AP) that the Bitcoin volatility on September 7 likely had little-to-nothing to do with El Salvador.
"My first guess was shenanigans, because it’s always shenanigans," Gerard said via email to AP.
"It's basically not responding to market forces or regulatory announcements," Gerard added. "That kind of price pattern, where it plummets in a big way in minutes and then rises again, is one of the biggest factors affecting traders."[Input from agencies]