Bitcoin price dives after China warning

China's financial and payment institutions should not accept Bitcoin as legal tender, Chinese authorities said on Thursday, warning of the risks related to the digital currency.

Within one hour following the warning, per Bitcoin price plunged by as much as 35 percent at BTC China, the main Bitcoin trading platform in the country.[Special coverage]

The warning was issued in a notice jointly released by the People's Bank of China (central bank) and four ministerial departments -- Ministry of Industry and Information Technology, China Banking Regulatory Commission, China Securities Regulatory Commission and China Insurance Regulatory Commission.

The warning is aimed at protecting the property rights of the public, safeguarding the Renminbi status as a fiat currency, preventing money laundering and maintaining financial stability in China, said the notice.

The notice said Bitcoins are not issued by any monetary authorities and do not contain the currency function of being legal tender with a government decree. They do not have the same legal status as fiat currencies, and should not be circulated in the market.

The notice, however, admitted Chinese people can make Bitcoin transactions at their own risk on the Internet.

It demanded financial and payment institutions not to price their products or services with Bitcoins, or to engage in transactions involving Bitcoins, or to accept insurances related to Bitcoins.

The notice also told Bitcoin-transaction online platforms to register at China's telecom industry regulator in accordance with laws, and to carry out anti-laundering obligations by identifying its consumers and reporting suspicious transactions.

The Chinese central bank will continue monitoring activities involving Bitcoins and related risks, it added.

After the release of the notice, the price of one Bitcoin at BTC China dived from 6,970 yuan (1,137 U.S. dollars) to as low as just over 4,500 yuan in about one hour, down by 35 percent.

It rebounded to about 5,500 yuan per Bitcoin at around 7 p.m. Beijing Time.

BTC China, on its website, warns investors that Bitcoin transactions contain extraordinarily high risks, as it does not have a daily 10-percent limit of rising or falling as the Chinese stock market. Also, it is open around the clock for transactions.

An estimated 1.8 million Bitcoins were traded in November on BTC China. It is China's largest Bitcoin trading platform aimed at investors buying and selling with the Chinese currency Renminbi, or yuan.

The central bank, in a separate statement, identified three major risks related to Bitcoins -- speculative, money laundering and being used by criminals.

Police in east China's Zhejiang Province recently detained three people who allegedly operated an online Bitcoin trading platform, shut it down unexpectedly, and vanished with investors' assets.

Police said the trading volume of the platform, which claimed to be based in Hong Kong, ranked fourth in the country. By the end of September, the platform had attracted 4,493 registered users.

The platform closed unexpectedly on Oct. 26, with a hacker's message on its homepage and its management team out of reach, the police said.

Bitcoins, which are stored in a virtual wallet, can pass from person to person around the world in secret, allowing users to remain anonymous. It bypasses both banks and banking regulators worldwide.

The Chinese public became aware of the digital currency in April, when movie star Jet Li's One Foundation received a donation of several hundred Bitcoins to help quake-stricken Sichuan Province.