Virtual currency fundraising banned
According to a joint document issued recently by People’s Bank of China, the country’s central bank, and five central government departments in charge of banking and securities, individuals and organizations have been banned from raising funds through initial coin offerings (ICOs).
ICOs raise funds through token-based virtual currencies, and ICO fundraisers have created and sold new crypto-currencies such as ethereum and litecoin, similar to bitcoin, to investors.
Through ICOs, companies have issued crypto-currencies to investors in exchange for virtual currencies with “more value” such as bitcoins, without following the rules that govern traditional fundraising channels such as initial public offerings on stock exchanges.
According to the joint statement, individuals and organizations that have raised funds through ICOs are required to return them to the investors. “ICOs, in essence, are a kind of unauthorized and illegal public fundraising suspected of being related to criminal activities such as financial fraud and pyramid schemes,” the statement said.
China’s regulators made the decision due to the fast increasing financial risks associated with ICOs and the suspicion that
ICOs are another form of Ponzi scheme. The prices of bitcoin and ethereum, major crypto-currencies in China, slumped immediately after the statement was posted on the central bank’s website.
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