The value of Bitcoins, the volatile virtual currency that has soared in recent months and made fortunes for some, plunged Thursday after China banned its banks from providing related services and products.
China has become the biggest Bitcoin market in recent months as buyers seek to profit from speculating in the currency.
Prices on BTC China, the country's biggest Bitcoin trading platform -- which had stood at more than 7,000 yuan (around $1,100) each -- plunged by more than a third to an intra-day low of 4,523.12 yuan.
The drop wiped more than $5 billion off the total value of the 12 million-odd Bitcoins currently in circulation.
They later recovered to trade at around 5,700 yuan each.
"Bitcoin is a certain virtual commodity, does not possess the same legal status as currency and cannot and should not be circulated and used in the market as such," the People's Bank of China (central bank) said in a statement issued jointly with other financial regulators.
Chinese banks and other financial organisations are banned from providing bitcoin-related services and products, it said.
It called for enhanced control of online trading platforms for bitcoins to defend against the possibility of money-laundering, and pointed out investment risks faced by the public.
"But ordinary people, under the premise of voluntarily shouldering the risk, have the freedom to participate in bitcoin trading as a kind of buying and selling activity on the Internet," it said.
Launched in 2009 as the invention of a mysterious computer guru who goes by the pseudonym Satoshi Nakamoto, bitcoins are digitally created and stored in a virtual wallet, allowing users to remain anonymous.
Concerns have increased internationally over the money amid questions about regulation and the potential for fraud and abuse.
The official Xinhua news agency reported Tuesday that police in eastern China took three people into custody for allegedly shutting down an online bitcoin trading platform and absconding with the assets of people who invested in it.