On Feb. 10 between 5:30 and 6:00 a.m. EST, the exchange rate between Bitcoins and US dollars on BTC-e briefly dropped all the way to $102 from a local maximum of $706 just 90 minutes earlier. In the hours following the drop, the exchange rate quickly recovered to nearly its value before the sudden crash.
Bitcoin prices fell recently from over $800 as Mt. Gox, one of the largest Bitcoin exchanges, announced on Feb. 7 that it was halting withdrawals due to increased traffic and a flaw in its protocol which can allow for fraud. While this caused significant drops in exchange rates on all major exchanges, no other exchanges saw their exchange rates drop below $530. Another explanation is necessary to explain what happened at BTC-e.
What is known is that a block of 6,000 Bitcoins sold at a very low price did the damage. What is unknown is whether the act was accidental or intentional, and what the motivation of the seller might have been. It is entirely possible that someone meant to create a large sell wall near $1,000 and forgot to add the last zero before confirming the sell order. On BTC-e, there is no script that asks a user to confirm a buy or sell order and there is no way to delay an order until a certain time or exchange rate is reached, so there is no way to undo such a mistake once it is made. Thus, a user who simply wished to wait to sell 6,000 Bitcoins for $6 million (or just discourage the exchange rate from trying to exceed $1,000 per Bitcoin) could have easily dumped them by mistake at $100 each, thereby filling all buy orders from $677 down to $102.
Another possibility is that the FBI moved to liquidate some of the 29,655 Bitcoins that its agents stole from Ross Ulbricht, the founder of the Silk Road black market website, which it has been holding since Ulbricht's arrest in October. The large volume of Bitcoins dumped supports such a hypothesis, as does the lowest trade at $102, roughly the going rate for Bitcoins in early October 2013. But so far, no one from the FBI has confirmed or denied such an action.
Finally, a private investor could have done this intentionally, with motives ranging from trying to cause a panic and scoop up even more Bitcoins to trying to raise awareness of the possibility of and need to prevent such a price manipulation by acting to cause one. Whatever the case is ultimately found to be, the Bitcoin spike of February 2014 will certainly be of interest to investors and economists of all types.