The price of bitcoin fell sharply today, after it emerged China's central bank is moving to "closely monitor" local bitcoin exchange businesses.
The cryptocurrency fell as low as $784.56 in lunchtime trading, before settling just above $800, 10.7 per cent down.
The People's Bank of China published a statement this morning saying it had formed a joint inspection team with other government organisations, and will carry out site inspections on bitcoin exchanges on 17 January to ensure they have the correct licenses.
The news follows a rally at the beginning of this month, with bitcoin surging above $1,000 for the first time in three years as central banks cracked down on cash.
However, the currency began to fall as rumours of tighter restrictions in China surfaced, with some even going as far as to suggest the country is considering banning it altogether.
"This is a ratcheting of the rhetoric from the Chinese Authorities – instead of 'we're watching you' it's now 'we're investigating you'," said Charles Hayter, chief executive and founder of CryptoCompare.
"The intentions of the Chinese state are clearer and it looks like they're trying to bring the Chinese bitcoin exchanges to heel – whether they are looking to make an example is yet to be seen.
"The long term implications of this move are positive as more rigour in the Chinese market only matures and brings respectability to the industry – but in the short term this could affect volumes which have been one of the key drivers of the recent rally."