Bitcoin has wiped out all its gains from the start of the year, falling below $30,000 (£21,557) for the first time since the beginning of January as a rout of the cryptocurrency gathered pace on Tuesday.
The digital coin lost a tenth of its value in early trading, falling as low as $28,990 to a level last touched on December 30, before recovering to be just over $32,000.
Trading volumes increased 15pc and speculators went on a selling spree, according to data from Coinmarketcap.
Jitters spread across other digital currencies with falls across all coins of 6.5pc. Ethereum, the second-biggest digital coin, suffered a 5.7pc decline.
Simon Peters, an analyst at eToro, said: “The primary reason for the sell-off has been the crackdown in China on mining operations and banking services.”
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Chinese regulators and its central bank have launched a sweeping crackdown against digital coin companies.
Bitcoin mining companies, which use banks of computer processors to power the calculations that run the digital coin, have been banned in the country, forcing miners to abandon their operations. China accounted for the majority of the world’s Bitcoin mining last year.
The People’s Bank of China has also ordered banks to stop trading, clearing and settlement of digital coin transactions, it said on Monday. Payment apps, such as Alipay, said they would step up monitoring for illegal cryptocurrency transactions.
Bitcoin has lost more than half its value since a buying frenzy sent it above $60,000 in April. The spike followed support from cryptocurrency enthusiasts such as Elon Musk, who said Tesla would use the digital coin for payments. Companies such as Uber, PayPal and Visa also said they would support cryptocurrency.
However, Mr Musk said last month that Tesla would no longer accept Bitcoin over environmental concerns about its power use and carbon footprint.
UK banks have also hardened their stance on cryptocurrency. TSB is planning to ban crypto purchases from sites with high rates of fraud, while Starling Bank has banned all payments to cryptocurrency exchanges.
Shares linked to digital coin prices have also suffered this week. Coinbase, the US cryptocurrency app, fell 3pc on Nasdaq on Tuesday and its shares have slumped by a third since it listed in April.
Shares in London-listed Bitcoin mining company Argo Blockchain fell 2.2pc.