Watch: Bitcoin falls again as China reiterates crackdown
The top crypto, bitcoin, plummeted over 11% to $37,429 (£26,428), while etherreum — the world's second largest crypto — plunged 13% to $2,552.
Dogecoin (DOGE-USD) fell as much as 15% to $0.34 during the session.
The crash was triggered by Chinese vice-premier Liu Hu saying China would "severely crack down on illegal securities activities and severely punish illegal financial activities."
He promised a "crack down on bitcoin mining and trading" as part of China's plans to "prevent and control financial risks."
Lui's comments followed statements from three state-backed organisations, earlier this week, that warned digital currencies were not "real", should not be used for purchases, and could face regulatory changes from banks and other authorities.
The country's central bank issued a statement on its WeChat account reiterating that financial institutions should not accept or deal with cryptocurrencies.
"China’s ban on banks and payment firms from providing crypto transaction services is a major blow for bitcoin’s use case and that of its rivals," said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.
China's announcement follows a government report in Hong Kong released on Friday that said cryptocurrency exchanges will have to be licensed by its markets regulator.
Under the new rules, which were announced after months of discussions, only professional investors with a portfolio upwards of $1m will be able to use the platforms.
Dozens of crypto platforms operate in Hong Kong. The city currently has an "opt in" approach under which exchanges can apply to be licensed by the Securities and Futures Commission, but this is not compulsory.
The city's Financial Services and the Treasury Bureau (FSTB) said on Friday that all virtual asset (VA) exchanges should be licensed if they wished to operate in Hong Kong.
It also added "confining the services of a VA exchange to professional investors... is appropriate at least for the initial stage of the licensing regime."
Cryptocurrencies have been struggling to regain losses from a massive sell-off earlier in the week, which saw the crypto world lose 20% of its value as deep correction hit the market. Bitcoin fell below $32,000 on Wednesday, while ethereum dropped as much as 30%.
"Crypto holders who are hoping for a rapid bounce back from this week’s dramatic falls, should buckle up and expect another rollercoaster ride, Streeter added. "Sentiment has shifted not simply because powerful influencers like Tesla’s Elon Musk have stepped back from being cheerleaders for bitcoin."