Bitcoin, which sustained an optimistic price rally over the past week, substantially declined in value within the last 24 hours, plummeting by 21 percent after the Chinese government issued a warning to Bitcoin users against potential risks.

On Jan. 5, the People's Bank of China (PBOC) released a statement to emphasize their stance on Bitcoin reiterating that the government of China does not consider Bitcoin to be a currency. However, the central bank of China highlighted that Bitcoin is still a virtual currency or a virtual “good,” which is legally traded and used within the country.

Local authorities within the country spoke to leading Bitcoin exchanges including BTCC, Huobi and OKCoin to discuss the status of regulatory frameworks and policies implemented for Bitcoin startups in the country. During their meeting, it was disclosed that the central bank simply asked the three exchanges to maintain operations in compliance with Chinese regulations and policies.

Essentially, the Chinese government and central bank issued a sensible warning and statement to the general public, which basically entailed that the central bank nor any other government agencies in China are responsible for any potential risks that Bitcoin may or may not hold.

The central bank of China stated:

“Bitcoin is a specific virtual good and does not have the same legal status as the currency. It can’t and should not be used as money in the market circulation. Participating institutions and individuals should carefully engage in activities such as Bitcoin investment and bear the corresponding responsibilities and risks.”

Regardless of the actual intentions of the statement, some media outlets and public figures aggrandized what was a sensible and standard statement stemming from the Chinese government’s concern over the rising value and usage of Bitcoin.

Although the Chinese government and its central bank issued a public statement for the general population to understand that the government is not responsible for their independent usage of Bitcoin, misunderstood and misled outlets created false propaganda and rumors leading to talks of a potential Bitcoin ban in the country.

In fact, BTCC, a major Chinese exchange that engaged in the discussion with PBOC, stated:

“BTCC regularly meets with the People's Bank of China and we work closely with them to ensure that we are operating in accordance with the laws and regulations of China. The press release put forth from the PBOC today outlines that there is significant volatility in Bitcoin trading, and also quoted from a notice released in 2013 saying that Bitcoin is a virtual good and doesn’t have legal tender status. All of our users should be aware of the current policies on virtual goods as well as the risks involved in trading in volatile markets.”

Such misguided speculations on the Chinese Bitcoin exchange market and the entire Bitcoin industry plunged the price of Bitcoin, which recorded a 21 percent loss, declining from $1,010 to $876 overnight.

What happens when China does ban Bitcoin?

If China’s warning statement on Bitcoin led to a 21 percent decrease within 24 hours since its release, an inevitable action to ban Bitcoin will highly likely drive the price down substantially within a short period of time, as seen in 2013.

Investors and traders must understand that the advantage of referring to Bitcoin as a global and decentralized store of value is that not a single entity or group is capable of banning or shutting the network, as Bitcoin and security expert Andreas Antonopoulos stated:

“The question is not whether Bitcoin should be regulated, but whether it “can” be regulated. The reality is “no.” The rest is nostalgia.”