The price of Bitcoin fell below $34,000 (£24,030) for the first time in three months on Wednesday, after China imposed fresh curbs on crypto-currencies.
Beijing banned banks and payment firms from providing services related to crypto-currency transactions.
It also warned investors against speculative crypto trading on Tuesday.
It follows falls in Bitcoin of more than 10% last week after Tesla said it would no longer accept the currency.
On Wednesday afternoon, Bitcoin recovered some ground, although it was still down -10.4% at $38,131.
Meanwhile, other digital currencies such as Ether, which acts as the fuel for the Ethereum blockchain network, and Dogecoin lost as much as 22% and 24% respectively.
At the same time, Tesla shares fell more than 3% on Wall Street, possibly because of the electric carmaker’s exposure to Bitcoin.
The firm, owned by Elon Musk, still holds around $1.5bn worth of the crypto-currency.
Beijing cracks down
Crypto-currency trading has been illegal in China since 2019 in order to curb money-laundering. But people are still able to trade in currencies such as Bitcoin online, which has concerned Beijing.
On Tuesday, three state-backed organisations, including the National Internet Finance Association of China, the China Banking Association and the Payment and Clearing Association of China issued a warning on social media.
They said consumers would have no protection if they were to incur any losses from crypto-currency investment transactions.
They added that recent wild swings in crypto-currency prices “seriously violate people’s asset safety” and are disrupting the “normal economic and financial order”.
Neil Wilson of Markets.com said: “China has for some time been putting pressure on the crypto space, but this marks an intensification – other countries might follow now as central banks make strides towards their own digital currencies.
“Until now, Western regulators have been pretty relaxed about Bitcoin, but this might change soon.”
In March, Tesla boss Elon Musk announced unexpectedly that the electric carmaker would allow customers to buy cars using Bitcoin.
But last week, he did a U-turn and suspended vehicle purchases using Bitcoin because of environmental concerns.
His fears centre on Bitcoin mining – the energy-intensive process through which the digital currency is generated, using high-powered computers. It often relies on electricity generated with fossil fuels, particularly coal.
“We are concerned about rapidly increasing use of fossil fuels for Bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel,” Mr Musk wrote.
“Cryptocurrency is a good idea… but this cannot come at great cost to the environment.”
He said the electric carmaker did not intend to sell any of its Bitcoin and intended to reinstate crypto-currency transactions once mining shifted to using more sustainable energy sources.
Although the digital currency cannot be traded in China, more than 75% of Bitcoin mining around the world is done in China.