China's central bank has finally had its say on bitcoin, ruling that it is not a proper currency and banning financial institutions from handling it.
With Chinese regulators appearing to take a relaxed approach to bitcoin, local investor interest in the virtual currency has surged in recent months, helping push its value past $1000.
However, the People's Bank of China- in conjunction with other regulators - has now issued a statement saying that bitcoin is a virtual good, not a currency and should not be used as such. Banks and financial institutions "may not conduct business associated with bitcoins".
The central bank says that individuals are free to trade the currency but highlights three concerns about it: that it is a risky investment because of volatility; that it is an attractive tool for money laundering; and that it is can be used by criminal gangs.
To help improve transparency, online bitcoin exchanges will have to file records with regulators and follow money laundering rules, reporting suspicious transactions.
Within an hour of the statement, bitcoin's value fell by 10% on BTCChina - which recently became the world's biggest exchange.
Meanwhile, Chinese police have detained three people accused of shutting down the bitcoin exchange they operated and making off with investors' assets, according to local news agency Xinhua. The GBL exchange was established in Hong Kong in May but shut down in October, leaving users only a fake postal address as a contact.
While bitcoin's true value has been hotly contested since it broke the $1000 mark last week, Wall Street analysts have predicted that it the currency could be worth 10-100x its current price.
Gil Luria and Aaron Turner from Wedbush say: "Among other facets, we believe Bitcoin and its associated technology represent a potentially game-changing disruption to our covered payments companies."
The pair also see value in Bitcoin for PayPal, arguing that it "represents another potential low cost funding method. PayPal is already incorporating private label cards, gift cards and miles into the digital wallet and we believe that with more regulatory clarity PayPal would likely embrace Bitcoin."
Similar musings have come from Bank of America Merrill Lynch. "We believe Bitcoin can become a major means of payment for e-commerce and may emerge as a serious competitor to traditional money transfer providers," wrote currency strategist David Woo in a 14-page note to clients this morning. "As a medium of exchange, Bitcoin has clear potential for growth, in our view."