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Bitcoin dips another $300 after China’s cryptocurrency crackdown

  • Bitcoin hit a low of $4,037 Tuesday - falling by more than $300 - as it continued to digest a Chinese clampdown on cryptocurrencies
  • The latest drop indicates a 20 percent fall following the coin's $5,000 high over the weekend
  • Several Chinese regulators announced a ban on initial coin offerings (ICOs) on Monday

Bitcoin fell by another $300 on Tuesday after the fallout of a Chinese ban on cryptocurrency crowdfunding methods saw the price of the digital coin slump earlier this week.

The virtual currency fell from $4,584 to $4,350 on Monday following the announcement of a regulatory clampdown on initial coin offerings (ICOs). Many start-ups rely on ICOs as a means to raise funds by selling off new digital tokens to the market. Total ICO investments peaked above $1.2 billion this year.

Although analysts contend that the price of bitcoin shouldn't necessarily be linked with China's ICO crackdown, the cryptocurrency hit a low of $4,037 on Tuesday, according to Coindesk's price index. This follows an all-time high of more than $5,000 over the weekend, meaning the currency fell by almost 20 percent in the space of a few days.

"The price action has certainly been led by this Chinese salvo - but healthy profits and moving traders to take gains off the table too until the panic calms," Charles Hayter, chief executive and founder of digital currency comparison website CryptoCompare, told CNBC via email.

The bitcoin analyst said that the cryptocurrency crackdown was expected due to "irrational excesses" in the Chinese market.

"The Chinese market has been perhaps the most virulently exuberant in terms of its irrational excesses and across the world regulators are looking to gradually turn up the regulatory heat on this ICO phenomenon," he added.

"This is certainly the Chinese state laying down the law and threatening all and sundry."

The People's Bank of China (PBOC) was among the number of government authorities to deem ICOs as an unauthorized fundraising method.

Ethereum also sees price dip

Meanwhile, the second largest cryptocurrency Ethereum also saw a fall in value following the clampdown.

The currency fell by as much as 15 percent on Monday, according to Coindesk.

Bitcoin was trading at $4,265 and Ethereum at $297 at around 11am London time.

ICOs surprisingly popular

Initial coin offerings have found favor with the unlikeliest of supporters.

Celebrity and entrepreneur Paris Hilton said on Sunday she would be participating in an ICO run by LydianCoin Ltd, the self-described "first AI big data marketing cloud for blockchain".

CryptoCompare's Hayter said that a ruling by the U.S. Securities and Exchange Commission in July indicating a regulatory framework for ICOs could be a reason for the fund raising initiatives going mainstream.

"The SEC rumblings are perhaps fortuitous too as Paris Hilton seems to toe into ICO territory," he said.