The price of Bitcoin fell below $34,000 (£24,030) for the first time in three months on Wednesday, after China imposed fresh curbs on crypto-currencies.
Beijing banned banks and payment firms from providing services related to crypto-currency transactions.
It also warned investors against speculative crypto trading on Tuesday.
It follows falls in Bitcoin of more than 10% last week after Tesla said it would no longer accept the currency.
On Wednesday afternoon, Bitcoin recovered some ground, although it was still down -10.4% at $38,131.
Meanwhile, other digital currencies such as Ether, which acts as the fuel for the Ethereum blockchain network, and Dogecoin lost as much as 22% and 24% respectively.https://buy.tinypass.com/checkout/template/cacheableShow?aid=tYOkq7qlAI&templateId=OTBYI8Q89QWC&templateVariantId=OTV0YFYSXVQWV&offerId=fakeOfferId&experienceId=EXAWX60BX4NU&iframeId=offer_0e763acc7b457c03340a-0&displayMode=inline&widget=template
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At the same time, Tesla shares fell more than 3% on Wall Street, possibly because of the electric carmaker’s exposure to Bitcoin.
The firm, owned by Elon Musk, still holds around $1.5bn worth of the crypto-currency.
Beijing cracks down
Crypto-currency trading has been illegal in China since 2019 in order to curb money-laundering. But people are still able to trade in currencies such as Bitcoin online, which has concerned Beijing.
On Tuesday, three state-backed organisations, including the National Internet Finance Association of China, the China Banking Association and the Payment and Clearing Association of China issued a warning on social media.
They said consumers would have no protection if they were to incur any losses from crypto-currency investment transactions.
They added that recent wild swings in crypto-currency prices « seriously violate people’s asset safety » and are disrupting the « normal economic and financial order ».
Neil Wilson of Markets.com said: « China has for some time been putting pressure on the crypto space, but this marks an intensification – other countries might follow now as central banks make strides towards their own digital currencies.
« Until now, Western regulators have been pretty relaxed about Bitcoin, but this might change soon. »
In March, Tesla boss Elon Musk announced unexpectedly that the electric carmaker would allow customers to buy cars using Bitcoin.
But last week, he did a U-turn and suspended vehicle purchases using Bitcoin because of environmental concerns.
His fears centre on Bitcoin mining – the energy-intensive process through which the digital currency is generated, using high-powered computers. It often relies on electricity generated with fossil fuels, particularly coal.
« We are concerned about rapidly increasing use of fossil fuels for Bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel, » Mr Musk wrote.
« Cryptocurrency is a good idea… but this cannot come at great cost to the environment. »
He said the electric carmaker did not intend to sell any of its Bitcoin and intended to reinstate crypto-currency transactions once mining shifted to using more sustainable energy sources.
Although the digital currency cannot be traded in China, more than 75% of Bitcoin mining around the world is done in China.