Price of Bitcoin falls by $300 during Wednesday trading as China’s central bank warns against the institutional use of the cryptocurrency.

Bitcoin Bitcoin crashes on hostility from Chinese authorities

Bitcoin’s China bubble has appeared to burst, as its value plummeted Thursday upon an announcement from China’s central bank that it was banning financial institutions from handling the virtual currency.

While China’s central bank hasn’t banned the currency outright, it did issue a strong warning about Bitcoin’s possible impact on the economy. Bitcoin exchanges will still be allowed to operate, but they must register with authorities.

Hao Hong, a Hong Kong based financial analyst, is quoted by Bloomberg as saying the central bank is concerned about Bitcoin’s interference with “monetary policy operation”.

“It represents an unofficial leakage to the current monetary system and trades globally,” he said, also mentioning the ease at which Bitcoin makes money laundering.

The sudden drop in Bitcoin’s value after the announcement could be from some users selling their bitcoins now that the Chinese government requires local exchanges to have “know your customer” laws. The government has recently cracked down on investors profiting from off balance sheet lending, and many perhaps saw Bitcoin as the next investment opportunity in that wake.

Bitcoin’s price has since stabilized and is currently trading at $900, down from approximately $1,100 the day before.