The price crash took bitcoin below $40,000 for the first time since February and was accompanied by wider market turmoil among other leading cryptocurrencies.
Ethereum (ether), cardano (ada) and dogecoin all saw heavy losses of between 15 and 20 per cent.
The news in China means that financial institutions will no longer be allowed to support crypto-related transactions.
Banks, payment platforms and lending institutions are effectively banned from offering customers any cryptocurrency services, including trading. The new regulations do not prevent individuals from holding bitcoin or other cryptocurrencies.
Three industry bodies – the National Internet Finance Association of China, the China Banking Association, and the Payment and Clearing Association of China – also claimed in a joint statement that cryptocurrencies are “not supported by real value”, resulting in market volatility.
“Recently, cryptocurrency prices have skyrocketed and plummeted, and speculative trading of cryptocurrency has rebounded, seriously infringing on the safety of people’s property and disrupting the normal economic and financial order,” the regulators said in a statement.
The latest losses come after a week of tumbling prices, first prompted by Elon Musk’s announcement that Tesla would no longer accept payments in bitcoin.
Bitcoin is down nearly a third since Mr Musk’s tweet last week, and down by more than 40 per cent since the all-time high it experienced in mid-April.
Despite this market slide, bitcoin is still well up from this time last year, when it was trading below $10,000.
Renowned market analyst PlanB noted that bitcoin had come “full cycle” after returning to the same price it was at when Tesla first announced that it would be accepting bitcoin payments.