ALERT! Bitcoin drops below key $9,000 level on Coinbase

A man walks past a Bitcoin symbol on a window of the offices of the bank 'La Maison du Bitcoin' on December 05, 2017 in Paris.

Bitcoin dropped Thursday to trade below $9,000, a critical level of support that many analysts are watching. The decline followed reports that raised worries about increased regulation in India and potential price manipulation at a major exchange.

The digital currency dropped nearly 13 percent to a low around $8,810 in late morning trading, ET, on Coinbase, the leading U.S. marketplace for trading major cryptocurrencies. Coinbase reported at 11:40 a.m., ET, that its system was experiencing issues with a provider of SMS 2-factor authentication that was impacting 'user sign-in, signups, and confirmations for sensitive actions,' according to the company's status website.

Bitcoin recovered slightly in midday trading to just above $9,000.

CoinDesk's bitcoin price index, which tracks prices from four major cryptocurrency exchanges including Coinbase, also briefly fell below $9,000 and was trading near $8,948. CME's and Cboe's bitcoin futures contracts for February both fell below $9,000 as well and hovered around that level.

Bitcoin performance in the last hour

Source: Coinbase

The drop came after comments from India's minister of finance, Arun Jaitley, that raised concerns about increased regulation on cryptocurrencies in the country.

The New York Times also reported Wednesday that an increasing number of digital currency investors are worried the price of bitcoin and other digital currencies have been inflated by cryptocurrency exchange Bitfinex, which is included in CoinDesk's price index. Bloomberg reported Tuesday that in December, the U.S. Commodity Futures and Trading Commission subpoenaed Bitfinex and a cryptocurrency company called Tether, which is run by many of the same executives.

Representatives for Bitfinex and Tether did not immediately respond to a CNBC request for comment.

'Concerns over tether are a minor contributing factor' to bitcoin's decline, Ari Paul, chief investment officer at cryptocurrency investment firm BlockTower Capital, said in an email. 'After the parabolic rally into mid-January, the market remains generally in corrective mode where minor bearish headlines are piling on to the fearful sentiment.'

Despite bitcoin's dip below $9,000 Thursday, the cryptocurrency held close to the psychologically key level in midday trading.

Fundstrat's Tom Lee, the only major Wall Street strategist to issue formal price targets on bitcoin, said two weeks ago that $9,000 is a 'major low' for bitcoin and 'the biggest buying opportunity in 2018.'

In that Jan. 18 report, Lee also raised his year-end price target for bitcoin to $25,000.

Bitcoin three-month performance

Source: CoinDesk, CNBC

Other investors are keeping a close eye on the $9,000 to $10,000 range.

Earlier this week, Joe DiPasquale, founder and CEO of BitBull Capital, a cryptofund that invests in other cryptofunds, told CNBC that hedge-fund managers he spoke with 'are pretty encouraged now for the defining of a new bottom for bitcoin around $10,000. It's a support level that can be moved up from.'

The $9,000 to $10,000 price range has been a difficult one for bitcoin to break below since it first topped $10,000 in late November. In January, bitcoin fell below $10,000 three times but always recovered, according to CoinDesk. Thursday's levels below $9,000 marked the cryptocurrency's lowest in just over two months.

'Lots of news regarding regulation is causing the market to panic,' said Nick Kirk, quantitative developer and data scientist at Cypher Capital, a cyrptocurrency trading firm.

India's Jaitley said in a speech Thursday that the government 'does not consider cryptocurrencies legal tender or coin and will take all measures to eliminate use of these cryptoassets in financing illegitimate activities or as part of the payment system,' according to a transcript from The Hindu. Jaitley also said the Indian government will explore the potentials of the blockchain technology, which is behind bitcoin and other cryptocurrencies.

'We think ethereum will outperform bitcoin by a country mile,' Kirk said. 'We think the war between bitcoin and bitcoin cash is having a negative effect on bitcoin sentiment.'

Ethereum erased earlier gains and was trading 3.5 percent lower near $1,079, according to CoinMarketCap. Bitcoin cash, which split off from bitcoin in August, fell 13.7 percent to $1,283.