The price of bitcoin slid over 1,200 Yuan in heavy trading in China, crashing nearly 20%, and down more than $100 under $800 on comparable US markets Wednesday, after China's central bank said it had launched "spot investigations" on bitcoin exchanges in Beijing and Shanghai in order to fend off market risks.

The investigation of exchanges, including BTCC, Huobi and OKCoin, was to look into "possible market manipulation, money laundering, unauthorized financing and other issues", according to the statements posted on the People's Bank of China's website.

To regular readers this should come as no surprise: precisely one week ago, when Bitcoin hit record highs in China, we explicitly warned:

for those buying into bitcoin here on the momentum, most of which originates in China, we urge readers to be cautious as by now the PBOC has certainly noticed that the digital currency remains one of the final, and most successful, means of bypassing capital controls in China. Should Beijing mandate that bitcoin no longer be a means to illegally transfer capital offshore, there is risk of a dramatic, and sharp, drop in its price.

Well, Beijing noticed, and the "dramatic, sharp" drop in price has taken place as expected; worse with China now openly aggressive against bitcoin "manipulation" it is difficult to see where the next burst of buying momentum will come from, if only in the near term. However, one possibility is that Chinese capital control-evaders will now gravitate to other alternative digital currencies, such as Ethereum, which have so far been far less prominent among Chinese bubble chasers.

ETH up as BTC down. How soon until Chinese bubble shifts to Ethereum — zerohedge (@zerohedge) January 9, 2017

As Reuters further adds on the Chinese crackdown, authorities have been ratcheting up efforts to stop capital outflows and relieve pressure on the yuan to depreciate. The currency lost more than 6.5 percent against the U.S. dollar last year.

With bitcoin's soaring price and the relative anonymity it affords, some believe the digital currency has become an attractive option for tech-savvy Chinese to hedge against the yuan and circumvent rules that limit the amount of foreign exchange individuals can buy each year.

"Some"... such as this site, which said to buy bitcoin precisely on that catalyst back in September 2015 when it was $230. However, after surging five-fold it was inevitable that China would notice, and the time to take profit had come.

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The Shanghai arm of the PBOC said it visited BTCC on Wednesday. "The checks focused on whether the firm was operating out of its business scope, whether it was launching unauthorized financing, payment, forex business or other related businesses, whether it was involved in market manipulation, anti-money laundering or (carried) fund security risks," it said. In a separate statement, the PBOC in Beijing, where officers visited the offices of OKCoin and Huobi, said "the spot checks were focused on how the exchanges implement policies including forex management and anti-money laundering".

A Huobi executive who declined to be named confirmed the PBOC visited their office on Wednesday, but declined to provide details. A spokeswoman for OKCoin told Reuters its platform was operating normally, and it was working with the authorities. Last week, PBOC officials meet with the three exchanges, and the central bank publicly urged investors to take a rational and cautious approach to investing in bitcoin.

Shanghai-based BTCC's CEO Bobby Lee confirmed the visit, but said he believed the company was not out of line. "We're definitely vigilant. We think we are in compliance with all the current rules and regulations of running a bitcoin exchange in China," he told Reuters by phone.

"I wouldn't call it an investigation. I think they are working closely with us to learn more about our business model and the bitcoin exchange industry. We had a very fruitful meeting today," Lee said.

Judging by today's plunge in the price of bitcoin, which has taken it back to levels just before last December's blast off, the market disagrees.