Bitcoin tumbled below the 40,000 USD mark on Wednesday hitting a 3,5 month low and dragging down other digital coins after China imposed new restrictions on transactions involving cryptocurrencies.

The coin is now down 40% from a record high of almost USD 65,000 hit on April 14. It is also heading for its first monthly decline since November 2018.

Bitcoin's moves hit other crypto assets too, with Ether, the coin linked to the ethereum blockchain network, falling 15%, while meme-based dogecoin tumbled 18%, according to market trackers.

The crypto declines were sparked last week by Musk's reversal on Tesla accepting bitcoin as payment. His subsequent tweets caused further confusion over whether the carmaker had shed its holdings of the coin.

Selling was exacerbated by announcement of China officials that the country will prohibit financial institutions and payment companies from providing payment services related to cryptocurrency transactions. It also warned investors against trading speculative actions in cryptocurrencies. 

Some experts predicted more losses ahead, noting the fall below 40,000 USD represented a breach of a key technical barrier which could set the stage for more selling.

More importantly, investors may be shifting from bitcoin back to gold, analysts at JPMorgan said, citing positioning data compiled on basis of open interest in CME bitcoin futures contracts.

The selloff in crypto assets precisely at a time when inflation fears are in the ascendancy dashes any suggestion of the asset class being an inflation hedge.

Recently, more traditional assets have been gaining ground, with gold up almost 6% so far this month.

The recent selloff in bitcoin and other digital currencies has taken market capitalization of all cryptocurrencies back under 1.7 trillion, down from the recent 2.5 trillion record./trustnodes.com

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