Bitcoin crashes after China bans banks from using virtual currency

Chinese regulators said Bitcoin does not possess the attributes of a currency and cannot be allowed to circulate as such (Getty Images)

The online currency Bitcoin plummeted more than 20 per cent today after Chinese regulators banned financial institutions from using it.

The value of the virtual currency declined from $1,240 to $870 on the Bitcoin trading exchange Mt. Gox.

Chinese regulators said Bitcoin does not possess the attributes of a currency and cannot be allowed to circulate as such. It also added that, while individuals are free to use it, it is at their own risk.

Former US Federal Reserve chairman Alan Greenspan and current chairman Ben Bernanke have also warned of the risks of Bitcoin.

Greenspan went as far as describing it as a "bubble" with no "intrinsic value" in a television interview. He also said there is no certainty of "where the money comes from".

While Bernanke highlighted that virtual currencies could lead to a "more secure and more efficient payment system", he also warned that the Fed does not have the authority to supervise or regulate the use of Bitcoin-like currencies, which have come under fire over allegations of money laundering and illicit payments.

The value of Bitcoin has soared in recent months, hitting the $1,200 mark, as enthusiasm for the virtual currency grows on prospects that it could become a legitimate form of payment in the near future.

Watch Greenspan in the video below: