China has banned financial institutions and payment companies from providing services related to cryptocurrency transactions, warning investors against speculative crypto trading.
Crypto-currency trading has been illegal in China since 2019 in order to curb money laundering.
However, people are still able to trade in currencies like Bitcoin online which has concerned Beijing.
In a statement, three state-backed industry associations — the National Internet Finance Association of China, the China Banking Association and the Payment and Clearing Association of China — said “cryptocurrency prices have skyrocketed and plummeted, and cryptocurrency trading speculation activities have rebounded”.
The price fluctuations “seriously violate people’s asset safety and disrupt normal economic and financial order”, said the statement, which was posted to social media by the People’s Bank of China.
The notice warned consumers against wild speculation, adding that the “losses caused by investment transactions are borne by the consumers themselves”, since Chinese law offers no protection to them.
It reiterated that providing cryptocurrency services to customers and crypto-based financial products was illegal for Chinese financial institutions and payment providers.
The move by China saw the price of Bitcoin fall below $34,000 (£24,030) for the first time in three months, while other digital currencies such as Ethereum and Dogecoin lost as much as 25% and 29% respectively.
The latest fall in the price of Bitcoin follows a fall of over 10% last week after carmaker Tesla said it would no longer accept the currency.
The firm, owned by Elon Musk, still holds around $1.5bn worth of the crypto-currency.
In March, Musk announced unexpectedly that the electric car maker would allow customers to buy cars using Bitcoin. However, last week he did a U-turn and suspended vehicle purchases using Bitcoin, citing 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,” Musk said.
“Cryptocurrency is a good idea… but this cannot come at great cost to the environment.”
He added that 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.