Bitcoin fell 11.6% this morning after South Korea announced it would ban anonymous trading of virtual currencies and crack down on money-laundering activities using them, amid growing fears of a bubble over crypto-currencies.
South Korea is emerging as a key centre for crypto-currency trading, accounting for 20% of global bitcoin transactions, roughly ten times its share of the world economy.
The new rules announced by South Korea include a ban on opening anonymous crypto-currency accounts and new legislation to allow regulators to close virtual currency exchanges if necessary.
"Officials share the view that virtual currency trading is overheating irrationally ... and we can no longer overlook this abnormal speculative situation," the government said in a statement.
All anonymous accounts currently in use will be closed next month, it added.
The policy package also includes stepping up crackdowns on money laundering activities and financial fraud, including price manipulation, using digital currency trades.
"We will ... resolutely respond to such crimes by slapping maximum sentences possible on offenders," it said, vowing to "leave all policy options open, including closure of a crypto-currency exchange when deemed necessary".
Bitcoin hit a record around $19,500 earlier this month, meaning it had increased more than 25-fold from its 2017 low in mid-January.
Its price fell 11.6% to $13,827 after this morning's announcement.
The announcement came two weeks after South Korea banned its financial firms from dealing in virtual currencies, most notably bitcoin, as their prices soared, sparking concerns of a bubble largely fuelled by retail speculators.
About one million South Koreans, many of them small-time investors, are estimated to own bitcoin.
Demand is so high that prices for the unit are around 20% higher than in the US, its biggest market.
South Korea also warned this morning that most crypto-currencies are being traded in the country at prices far higher than elsewhere in the world, blaming factors including "blind speculation".
In a case highlighting the risks of crypto-currency, a Seoul virtual currency exchange declared itself bankrupt last week after being hacked for the second time this year.
The Youbut exchange became the first South Korean crypto-currency exchange to close after the hacking attack that stole 17% of its assets.
There have been numerous warnings about a possible blowout in the bitcoin market.
Bank of Japan governor Haruhiko Kuroda said last week that the price surge of the virtual currency was "abnormal," while Singapore's central bank advised investors to "act with extreme caution".
The vice president of the European Central Bank has also expressed concern about the relentless rise in the value of bitcoin and the potential risk accompanying the trend.