Bitcoin's price crashed by $700 in under an hour on Tuesday morning but managed to settle at around $7,950.
Other major cryptocurrencies, including ethereum and ripple, also experienced significant losses, dropping in value by around 7 per cent over the last 24 hours.
The month of May had been bitcoin's best month since August 2017 and many cryptocurrency analysts predicted it could go on to reach highs above the $20,000 level bitcoin reached in late 2017.
The cryptocurrency's value is still way above the levels it was trading at in early May and some are still hopeful bitcoin can surpass its peak level, pointing to similar setbacks bitcoin suffered throughout 2017.
Bitcoin's recent run of good form comes amid increased interest in the cryptocurrency, with online searches reaching an 18-month high last week.
The correlation between online interest and the price of bitcoin has often been noted by investors and market analysts.
Recent interest was fuelled by search spikes in countries not typically associated with cryptocurrency, including South Africa, Nigeria and Ghana.
It is not clear what caused bitcoin's latest price crash, though the rollercoaster market can sometimes be explained by a single trade.
A similar dip in mid May was blamed on one investor selling off 5,000 bitcoin on the Bitstamp exchange.
The sale triggered a mass sell-off and resulted in a flash crash that wiped more than $10 billion from bitcoin's market capitalisation in just 20 minutes.
One analyst described the bitcoin market as a "game for whales", referencing the small number of traders that hold a huge portion of the cryptocurrency.
"This was a huge dump," cryptocurrency author David Gerard wrote in a blogpost at the time. "This keeps happening, and has done for the past few years. A pile of short or long positions on the price will be blown by someone manipulating the price."
Bitstamp said it was investigating the incident.
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