The latest cryptocurrency boom is beginning to stall as regulators worldwide turn their attention to the “initial coin offerings”, which have driven a precipitous rise in the sector’s market value reaching a high of $177bn (£136bn).

The total value of the hundreds of tracked cryptocurrencies has fallen by more than 18% to $145bn since Friday’s high, according to analytics site CoinMarketCap. The collapse seems to have been triggered by a ruling from the Chinese central bank that declared it illegal to raise money through launching new cryptocurrencies.

An initial coin offering (ICO) is a relatively recent innovation for cryptocurrency developers, and involves selling a number of cryptographic tokens to investors at the launch of the project. These tokens can represent almost anything, from another attempt to make a Bitcoin analogue to exclusive access to an app or service. They have been responsible for some big funding rounds: adblocking browser Braveraised $35m for its ICO, while an ICO for service designed to help ICOs raised more than $150m.

ICOs have even become popular enough for celebrities including Floyd Mayweather and Paris Hilton to jump on board. The hotel heiress has actually been involved in the area for more than a year, having met with the COO of prominent blockchain firm Ethereum in 2016.

Paris Hilton (@ParisHilton) Looking forward to participating in the new @LydianCoinLtd Token! #ThisIsNotAnAd #CryptoCurrency #BitCoin #ETH #BlockChain pic.twitter.com/a8kT9eHEko

Since the concept was first mooted, however, there have been concerns over its legality, with experts warning that selling a cryptographic token which entitles the holder to a share of profits in a business could be a violation of financial regulations.

Now, the People’s Bank of China has confirmed just that. Individuals and organisations that have completed ICO fund raising should make arrangements to return funds, according to a joint statement from the bank, China’s securities and banking regulators, and several other government departments.

Some experts still think the sector has hope. Zennon Kapron, director of the Shanghai-based financial technology consultancy Kapronasia, said he suspected regulators were putting the brakes on ICOs in order to better understand the phenomenon, but could ease off in the future.

“Regulators globally are struggling to understand what ICOs are, what the risks are, and how to ring-fence and regulate them,” he said. “China, in many ways, is no different than the US or Singapore in saying: ‘OK, we need to push back on these for now until we figure out how to deal with them’. I think it will be slightly a temporary measure.”

The US Securities and Exchange Commission (SEC) issued its own ruling in July. While not as wide-ranging as the Chinese statement, it leaned in the same direction. The agency said: “Depending on the facts and circumstances, the offering may involve the offer and sale of securities.

“If that is the case, the offer and sale of virtual coins or tokens must itself be registered with the SEC, or be performed pursuant to an exemption from registration.”

The SEC’s statement was prompted by the conclusion of its investigation into the biggest ICO failure to date, a 2016 experiment called the DAO which ended up losing millions of dollars worth of cryptocurrencies due to a bug in its software.

The SEC’s stance has also had a chilling effect on the creation of new ICOs in the US. At least two planned offerings have been put on hold as a result of the document. One, Harbour, said it was a pre-emptive action based on the project’s conclusion “that there is just too much uncertainty within our current model to forge ahead without some careful assessment and perhaps revision”. Another, Protostarr, was cancelled after its chief executive was investigated by the SEC.

Those in the cryptocurrency sector believe a short period of overregulation will eventually be reversed as the merits of the technology become clear.

“The initial coin offering is a new business model leveraging blockchain technology and it will remain,” said Oliver Bussman, of the Switzerland-based Crypto Valley Association. “This is not the end of the ICO – absolutely not.”

While some ICOs are unambiguously analogous to stocks and shares, many, such as those which offer resellable access to an application to the holders, are more novel, and may survive regulation unscathed.