The price of bitcoin fell sharply after Chinese regulators announced a ban on organizations from raising funds using initial coin offerings (ICOs). ICOs allow start-ups to raise investment by selling new cryptocurrencies, which are similar to bitcoin, in return for cash. However, the People’s Bank of China says this constitutes illegal fundraising.
Despite bitcoin’s price falling, some expect this move to be shortlived.
"This type of news is ‘universally’ negative sentiment, within the crypto space, so we are not surprised to see a dip on all assets today," Fran Strajnar, co-founder and CEO of data and research company Brave New Coin, told CNBC via email.
"We do not see this to be a lasting issue."
While the ban on ICOs does not directly affect bitcoin, the news created negative market sentiment which is weighing on the prices of several virtual currencies, according to Charles Hayter, chief executive and founder of digital currency comparison website CryptoCompare.
"A rising tide lifts all boats but the opposite is also true – with generally bad news reverberating across the ecosystem all cryptos have turned red together," he told CNBC via email.
However, Hayter added that the long-term effects of regulation are positive.
"The wheat will be sorted from the chaff and a new gold standard of ICOs can be striven for," he said.
Bitcoin’s price fell from $4,584 shortly before the announcement to around $4,350 per bitcoin. It was trading around the $4,429 level at midday London time on Monday, according to market data from Coindesk.
The move by China is not the first time the country’s regulators have attempted to crack down on the cryptocurrency space. In January and February, the central bank warned several digital currency exchanges they would be shut down if they violated anti-money laundering rules.
Furthermore, while bitcoin dropped sharply on the news, its price has been trending down since hitting the $5,000 milestone at the weekend. Strajnar said this recent climbdown is most likely just profit taking by investors.
"There is likely some profit taking since reaching almost $5,000 on bitcoin, but the amount of fresh capital that continues to pour in suggests this is not the start of a trend reversal."