The phenomenal move in Bitcoin has been monumental, but a serious dose of reality is now hitting the virtual currency. Having risen from less than $100 to more than $1,200 made Bitcoin the new virtual gold trade, but on a parabolic basis. Now the currency has received a crushing blow from China, and the currency was called a bubble by former Federal Reserve Chairman Alan Greenspan.

24/7 Wall St. has been more than puzzled by the rise of Bitcoin. It is a virtual currency, limited to 21 million full units, and you cannot ever physically hold a bitcoin. There is no nation behind it that can levy a tax, there are no physical resources behind it and there is no armed forces system that can defend its interests.

China looked as though it would endorse Bitcoin, but the Chinese dealt the currency a reversal of fortune. The People’s Bank of China announced that Bitcoin was barred from use in all of China’s financial institutions. The good news is that individuals and non-financial companies can still use Bitcoin. The bad news is that the bank says they do so at their own risk.

In a Bloomberg TV session Wednesday, Alan Greenspan crawled out of the crypt and said in an interview that Bitcoin was likely a bubble. He at first responded to whether it was a bubble saying, “I guess so.” He then became a bit more pointed and called it a bubble outright, saying that currencies have to be backed by something real and that he cannot understand its backing.

MtGox and other Bitcoin exchanges all show different prices, but Bitcoin’s value fell by 30% before recovering a bit. The last trade on MtGox was $1,086, but the low was $870 earlier, and against a cycle high of $1,242 for Bitcoin.

Ask yourself this one question: How many real currencies drop by 30% in a day or in a month?

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