Bitcoin values plunged yet again on Wednesday after BTC China, the world’s largest Bitcoin exchange, confirmed that it can no longer accept cash deposits in Chinese Yuan Renminbi, according to the AP news agency.

BTC China’s announcement comes following rumors that first emerged this week – that the People’s Bank of China had banned third-party payment processors from funding Bitcoin exchanges in the country. Just hours BTC China made its announcement, the price of Bitcoin fell to $520, before clawing its way back to $664 at the time of writing, according to the weighted average on Bitcoinaverage.com.

In related news, China’s central bank website was reportedly hacked on Wednesday, in what may have been a revenge attack launched by Bitcoin users. CNN reports that both the central bank’s website and its Weibo account (Weibo is the Chinese equivalent of Twitter) were hit by Distributed Denial of Service (DDoS) attacks and briefly taken offline. By Thursday, both sites appeared to be working normally again.

Before the Peoples Bank of China launched its crackdown on Bitcoin, the cryptocurrency’s value had soared to previously unseen heights of around $1,150, due to strong demand from Chinese investors.

Reasons for optimism

What with China seemingly frozen out of Bitcoin at the moment, readers might be wondering if its about to head into a steep decline? Will Bitcoin be held back by regulations and the looming possibility that other central banks, such as those in Europe, might also decide to ban it?

Some kind of regulation is all but inevitable in future. It’s no secret that Europe has warned of the risks involved in dealing with virtual currencies and is considering regulating them, but any rules would most likely be designed to facilitate BTC transactions safely – it would be a big, big shock if any European nation actually tried to ban Bitcoin, as China seems to be doing. Meanwhile, in the US, the signs are actually pretty encouraging, with lawmakers already beginning to examine potential rules for Bitcoin.

Perhaps the biggest reason to be optimistic comes from Senator Thomas Carper, a Delaware Democrat who chairs the Homeland Security Committee that’s been tasked with examining Bitcoin’s validity. In an interview with Bloomberg yesterday, Carper appeared to take a very progressive stance on virtual currencies, stating that “virtual currencies are not going away, and if they are going to be a reality we need to figure out how to let them exist to do good, a lot more good than bad, and figure out how to deal with the bad.”

Finally, for all those doom and gloom merchants who still believe that Bitcoin is teetering on the edge of a cliff, they might do well to remember that whatever happens in the next few days, the cryptocurrency is well up on where it was last year. When you consider that one Bitcoin was worth just $13 back in December 2012, it’s fair to say 2013 hasn’t been a bad year overall.