Bitcoin crashes after Chinese ban

Digital currency Bitcoin dropped severely in value over the weekend, falling from record highs of US$1200 (A$1314) to US$722 on Mt Gox, the largest exchange.

Mt Gox registered wild swings in Bitcoin trading volumes and prices, with the rate dropping below US$600 before settling at just over US$700.

The crash is thought have been triggered by The People's Bank of China, the country's monetary regulator, which banned the nation's financial institutions from handling Bitcoin transactions and providing pricing in it.

Source: Mt Gox

PBOC's decision is believed to be due to Chinese banks using Bitcoin to bypass trading controls for the national currency yuan renminbi.

Large Chinese web services provider Baidu also said it would stop accepting Bitcoin along with telco giant China Telecom, further aggravating the fall in value over the weekend.

Last week, France's central bank stepped in, and warned Bitcoin was inherently volatile, as did former United States federal reserve chairman Alan Greenspan, who declared the digital currency was in a bubble.

But Bitcoin found a surprise backer in Bank of America Merrill Lynch, which said the digital currency will become a serious competitor to cash.

BofA-ML lauded the currency as being "tamper-proof", and having limited supply and divisibility.

"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. As a medium of exchange, Bitcoin has clear potential, in our view," the bank's analysts wrote.