Cryptocurrency panic, chaos as China bans ICOS
A JOINT REPORT
CHINA’S MOVE last week to ban initial coin offerings (ICO) has caused chaos among startups looking to raise money through the novel fund-raising scheme, prompting halts, aboutturns and re-thinks.
China is cracking down on fundraising through launches of token-based digital currencies, targeting ICOS in a market that has ballooned this year in what has been a bonanza for digital currency entrepreneurs.
“One of the reasons regulators stepped in was that the ICO fever extended beyond the traditional crypto community. The timing was an attempt to pre-empt this before it goes into a much broader mass market in China,” said a partner at a venture capital fund in Shanghai, who did not want to be named because of the issue’s sensitivity.
Investors in China contributed up to 2.6 billion yuan ($394 million) worth of cryptocurrencies through ICOS in January-june, according to a state-run media report citing National Committee of Experts on Internet Financial Security Technology data.
While several start-ups said the exuberance had got out of control and they had expected Beijing to act, they said last week’s move panicked investors and caused confusion.
Mi Huijin, for example, said he had just got off a train to Shanghai after closing a deal for his Singpay blockchain start-up when he switched on his phone to a flood of messages about the ban. He summoned the host of a popular live-stream channel to the railway station to calm his followers in a 40-minute broadcast.
“Everyone shouldn’t panic. If you’ve nothing to be guilty of what’s there to be scared of?” he told the roughly 800,000 viewers. “After reviewing the regulations, I feel it’s a good thing.”
Not everyone was convinced. While some comments below his video asked if Singpay would offer refunds, others warned that some users had reported the start-up to police.
China’s position — which differs from regulators elsewhere, who say ICOS may be securities and thus subject to regulation — remains open to interpretation.
Hu Bin, deputy director of the finance institute at the China Academy of Social Sciences, an institution directly under the State Council, or Cabinet, has said this is a “stop on ICOS, not a ban. What are we stopping? Illegal ICOS.”
Hu said China recognised there is real demand for ICOS, but wants to prevent them being used for speculation.
“It’s entirely proper for the Chinese government to seek protection for consumers and prevent fraud, (but) confining capital raising to a specific established sector of finance ... is to ignore the enormous societal value that blockchain technology can present,” said Alex Bessonov of Bitclave, a Silicon Valley-based blockchain company.