Initial coin offerings are nothing but Ponzi schemes in e-business garb

PEOPLE’S BANK OF CHINA, the country’s central bank, along with banking and securities regulators and five other central government departments issued a joint statement on Monday banning individuals and organizations from raising funds through initial coin offerings (ICOs), or digital currency launches. Southern Metropolis Daily comments:

Individuals and organizations that have raised funds through ICOs are required to return them to the investors. The joint statement also says that since ICOs never obtained the authorities’ approval, they are illegal.

The prices of bitcoin and ethereum, which comprise the bulk of the crypto-currencies in China, slumped immediately after the statement was posted on the central bank’s website.

The ban ends a longtime controversy over ICOs, the main source of funds for a number of digital currency companies that described them as a financial innovation or part of digital economy. Such companies managed to raise large sums of money in no time by selling their selfcreated digital “tokens”, with some known to have raised $150 million through ICOs in just three hours.

And although the business grew at a fast pace for years with almost no supervision, its “model” was similar to Ponzi scheme, with some insiders saying its profit margin even dwarfs that of drug trafficking.

No country recognizes bitcoin as a currency, because it is only a virtual commodity in cyberspace and devoid of any value. In other words, the bitcoin is just a sign created by some people to make money in the fast lane. No wonder many developed countries have subjected bitcoins to the most meticulous scrutiny.

However innovative a financial process may be, it should not be exempted from regulatory oversight, lest it causes chaos in the financial sector and harms people’s interests. Therefore, all financial innovations must be well regulated and effectively monitored.