Bitcoin tumbled by the most since July after China’s central bank said initial coin offerings are illegal and asked all related fundraising activity to be halted immediately. It was the strongest regulatory challenge so far to the burgeoning market for digital token sales.

The People’s Bank of China said on its website Monday that it had completed investigations into initial coin offerings, or ICOs, and will strictly punish offerings in the future while penalizing legal violations in ICOs already completed. The regulator said those that have already raised money must provide refunds.

It also said digital token financing and trading platforms are prohibited from doing conversions of coins with fiat currencies. Digital tokens can’t be used as currency on the market and banks are forbidden from offering services to ICOs.

“This is somewhat in step with, maybe not to the same extent, what we’re starting to see in other jurisdictions – the short story is we all know regulations are coming,” said Jehan Chu, managing partner at Kenetic Capital Ltd. in Hong Kong, which invests in and advises on token sales. “China, due to its size and as one of the most speculative IPO markets, needed to take a firmer action.”

Bitcoin tumbled as much as 11.4 percent, the most since July, to $4,326.75. The ethereum cryptocurrency was down more than 16 percent Monday, according to data from Coindesk.

ICOs are digital token sales that have seen unchecked growth over the past year, raising $1.6 billion. They have been deemed a threat to China’s financial market stability as authorities struggle to tame financing channels that sprawl beyond the traditional banking system. The central bank’s Monday directive made no mention of cryptocurrencies such as ether or bitcoin.

There were 43 ICO platforms in China as of July 18, according to a report by the National Committee of Experts on the Internet Financial Security Technology. Sixty-five ICO projects had been completed, the committee said, raising the equivalent of $398 million.

“This is a positive move given the rapid proliferation of low-quality and possibly fraudulent coin sales promising the moon,” said Emad Mostaque, London-based co-chief investment officer at Capricorn Fund Managers Ltd. “There is tremendous value in the model, but we need to see more separation of high-quality, ethical offerings versus those seeking to circumvent securities law for a quick buck.”

A cross between crowdfunding and an initial public offering, ICOs involve the sale of virtual coins mostly based on the ethereum blockchain, similar to the technology that underpins bitcoin. But unlike a traditional IPO in which buyers get shares, getting behind a startup’s ICO nets virtual tokens – like mini-cryptocurrencies – unique to the issuing company or its network. That means they grow in value only if the startup’s business or network proves viable, attracting more people and boosting liquidity.

That’s a big if, and the profusion of untested concepts has spurred talk of a bubble. The U.S. Securities and Exchange Commission signaled greater scrutiny of the sector when it warned that ICOs may be considered securities, though it stopped short of suggesting a broader clampdown.

Chu of Kenetic Capital said he believes China will likely eventually allow token sales, but only on approved platforms, and may even vet projects individually.

“I think they will allow the sale of tokens in a format which they deem safe and more measured,” he said.