Bitcoin’s worst trading day of 2017 has been recorded in China, where a massive surge in cryptocurrency trading took place on Friday.
The crypto-currency was down more than 5 per cent on Monday, and hit a fresh all-time low on Tuesday.
The move coincided with a warning from the country’s central bank that bitcoin and other cryptocurrencies could be a “potential source of instability in the global financial system”.
The bank said the value of digital currencies had increased “significantly” in 2017, and that a number of virtual currencies were “potentially prone to becoming uncontrollable” as their supply is limited.
It was the latest warning from China’s financial regulator, the Central Bank of China, to support the idea that bitcoin, a virtual currency that can be bought and sold, could become a source of financial instability.
The central bank has warned that if bitcoin became a major currency, it could trigger an “exorbitant” increase in interest rates and cause a crash in the Chinese economy.
“The central government has stated that a crash could cause a financial collapse of the world economy,” said Li Shuo, deputy director of the Bank for International Settlements.
“We think this is the worst of the best.
We don’t want to be caught in a bubble.”
The Bitcoin Price Index, which measures the price of the digital currency in Chinese yuan, fell nearly 6 per cent after the announcement.
China’s central government also announced a crackdown on virtual currency trading on Monday.
The country has a ban on cryptocurrencies such as bitcoin and ether, but has allowed exchanges and wallet services to operate.
A report from Bloomberg said the Chinese government was cracking down on cryptocurrencies and other “futures” currencies, including ether, to protect the nation’s “financial stability”.
The central regulator also issued a statement saying the Chinese central bank would continue to monitor the development of virtual currency markets.
“A stable exchange market and stable financial system are the foundations of the Chinese economic development,” it said.
“China will continue to closely monitor the developments in virtual currency and other futures markets.”
Reuters reported that China’s central Bank of Control also announced it was cracking up bitcoin trading, in a move that could affect a significant portion of the global economy.
In China, bitcoin and ethereum, the second- and third-most popular cryptocurrencies, are both trading at less than a tenth of their price in the US.