Bitcoin plunges, recovers after China bans virtual fundraising

China's decision to clamp down on bitcoin and other crypto-currencies has sent a shock through the world's virtual currency markets, an indication of the power of the country's investors in the exchanges.

The bitcoin steadied Tuesday internationally after dropping sharply following Beijing's decision to ban initial coin offerings.

The central bank has decreed that Chinese firms will no longer be able to issue electronic currency units to raise funds.

The offerings, which had flourished with the rise of the bitcoin and rival crypto-currencies, are banned and "must cease immediately", the People's Bank of China said in a circular published Monday.

The decree was seen as one way for Beijing to gain control over crypto-currencies, which are created using blockchain technology and are sold and bought online without any government regulation.

"Issues of this type... and offences committed in past operations will be severely penalised," said the PBoC, pointing out that the growth of virtual currency offerings had "seriously disrupted the financial sector" and encouraged speculation.

The platforms on which these electronic currency units are traded are now banned from converting them into hard currency, it said.

The directive immediately pushed down the bitcoin, which -- in dollar terms -- lost more than 10 percent on a single day on Monday.

According to the Bitcoin Price Index, which offers an average of the various global platforms, it recovered somewhat Tuesday and was fetching $4,280 at 1100 GMT -- still a 14 percent drop compared to Saturday.

On Chinese trading platforms, the drop was even more drastic. On BTC China, the price of the bitcoin dropped to 26,400 yuan ($4,029) on Tuesday evening compared to Monday's 32,500 yuan. In the past two days it lost up to 20 percent of its value before stabilising.

There were 40 Chinese platforms offering initial coin offerings as of mid-July and some 65 issues have already been made in the country, raising a total of 2.6 billion yuan, according to a committee of Chinese experts cited by Bloomberg News.

In an attempt to halt capital flight overseas and clean up its financial system, Beijing began early this year to tighten controls on bitcoin trading platforms by restricting, in particular, transactions considered excessively speculative.

The two main Chinese platforms, BTC China and Okcoin which operate in yuan, account for 22 percent of the world trade in bitcoins, according to reference website bitcoinity.org