Just what the hell has been going on with Bitcoin these last 24 hours? Less than a day after it reached a record-breaking high of $260, the bubble appeared to have burst as the cryptocurrency’s value tumbled all the way back down to a low of just $130 overnight, according to Mt Gox, the largest Bitcoin exchange.

But just when it looked like everyone who’d bought in the last week was about to burst into tears, Bitcoin staged a dramatic rally, recovering half of its lost value in just a couple of hours. At the time of writing, its price seems to be fluctuating at around $180.

It’s not immediately clear why Bitcoin fell so far and so fast, nor why it recovered so quickly just as everyone was about to hit the panic button, though the San Francisco Bitcoin exchange Tradehill blamed unconfirmed DDoS attacks on Mt. Gox and Bitstamp. DDoS attacks overwhelm a website with external requests, preventing them from honoring the requests of genuine users, something that could cause a loss of confidence in the all-too temperamental cryptocurrency.

Such an event took place last week when Bitcoin soared to a then record-breaking $142. The attack caused what Mt. Gox described as its “worst trading lag ever”, leading to a slight blip in bitcoin’s otherwise steady accumulation against the dollar.

At that time, the Tokyo-based exchange said on Facebook that the DDoS attack was most likely the work of hackers attempting to manipulate the price of Bitcoin, creating themselves a window of opportunity to buy low and then sell for a profit once it regained lost value:

“Attackers wait until the price of Bitcoins reaches a certain value, sell, destabilize the exchange, wait for everybody to panic-sell their Bitcoins, wait for the price to drop to a certain amount, then stop the attack and start buying as much as they can. Repeat this two or three times like we saw over the past few days and they profit.”

The Great Bitcoin Giveaway

It might be that this is what’s happening again, but other possibilities exist too. Ars Technica is reporting a curious incident that took place on Reddit, where a user going by the name of “Bitcoinbillionaire” suddenly came over all charitable. The user randomly gave away almost $12,000 worth of Bitcoins (63 BTC) to thirteen lucky redditors, before halting his giveaway after 12 hours.

Business Insider reports that Bitcoinbillionaire exploited the Bitcointip service in Reddit that allows members to send small cash donations to other users. The luckiest random redditor appears to have been “Karelb”, who received the astonishing gift of some 20 BTC, worth approximately $4,000 at the time of writing. Intriguingly, the gift was sent under a comment thread titled “I wish for the price to crash”.

At the moment, there’s no evidence to suggest that Bitcoinbillionaire’s lavish giveaway significantly affected the cryptocurrency’s price.

UPDATE

Mt. Gox has just updated its Facebook status in the last couple of hours, saying that it experienced a lag due to a record number of new accounts being opened. As a result, this caused a number of people to panic and sell, something that may have driven Bitcoin’s value down:

“Indeed the rather astonishing amount of new account opened in the last few days added to the existing one plus the number of trade made a huge impact on the overall system that started to lag. As expected in such situation people started to panic, started to sell Bitcoin in mass (Panic Sale) resulting in an increase of trade that ultimately froze the trade engine”

We’ll bring you more news on this story as soon as we hear about it.