The People's Bank of China has declared initial coin offerings (ICOs) illegal and wants them to “cease immediately”.
A growing number of tech companies are opting to sell digital “tokens” because they are quick, easy and unregulated.
The ban saw sharp falls in the two leading crypto-currencies, with bitcoin tumbling $200.
Issuing ICOs - a relatively new phenomenon - has become popular in China, with close to $395m (£305m) raised from investors this year but it is part of a growing global trend. The research site CoinDesk suggests more than $1.5bn in capital has been raised through ICOs since the start of the year.
That's up $256m from last year.
The move is aimed at protecting investors and “dealing with the risks properly”, said a joint statement from the People's Bank of China, securities and banking regulators and other government departments.
ICOs unlike the more traditional share offerings, involves companies raising cash with ICOs don't necessarily offer investors a stake or equity in their business in exchange for their money.
There are legitimate ICOs out there, but a lot of companies are jumping on the ICO bandwagon because it is largely an unregulated space at the moment, and thus, an easy way to raise cash.