Bitcoin fell below $40,000 for the first time since early February on Wednesday , dragged down by the news that Chinese authorities have explicitly banned financial institutions and payment companies from providing services related to cryptocurrency transactions.

Announcing the ban, three state-backed organisations stated that virtual currencies "are not supported by real value" and maintained that recent volatility in the cryptocurrency market seriously infringed on "the safety of people's property" and "the normal economic and financial order".

Musk-triggered downward momentum extended by Chinese ban

Five weeks ago, the world’s first and largest cryptocurrency jumped to a new all-time high of $64,829, bolstered by increased institutional acceptance. One prominent company that had joined the throng of firms interested in Bitcoin was Musk’s Tesla Motors, which acquired $1.5bn worth in February.

Although his company made a $101m (£71m) profit by selling off a portion of the holding in February, Musk last week had Bitcoin in his sights, criticising the environmental cost of its mining process and at one point even hinting that he could liquidate Tesla’s holding. 

The South Africa-born billionaire went on to reaffirm his support for cryptocurrencies in principle and said his company had not sold off any more Bitcoin. However, the clarifications failed to buoy investor sentiment.

As a result of China's ban and Musk's criticism, Bitcoin has plunged by more than 33% in the past 10 days and seen more than $350bn wiped off its market capitalisation.

Exchanges see largest daily net inflows since 2020 COVID plunge

 According to data from on-chain market analysis firm Glassnode, Binance, one of the biggest cryptocurrency exchanges, recorded the largest day of Bitcoin inflows on record. The company was founded in China but moved to Japan and then the Cayman Islands in the wake of the Chinese Communist Party's 2017 ban on domestic cryptocurrency exchanges.

More broadly, Glassnode found that cryptocurrency exchanges registered a net inflow of 30,749.89 BTC on Monday. It represented the largest single-day total since Bitcoin’s 40% plunge on 12 March 2020, when global markets were rocked by COVID-19 uncertainty.

Inflows into exchanges are generally thought of as indicators of negative sentiment, with assets moving out of cold storage or decentralised finance protocols to be sold on the market.

By early-afternoon, Bitcoin traded down 12% at $38,682, having fallen as low as $37,746 at one point.

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