CHINA BANS INITIAL COIN OFFERINGS

Regulator says those who have raised money must provide refunds

HONG KONG

CHINA’S central bank said initial coin offerings (ICOs) are illegal and asked all related fundraising activity to be halted immediately, issuing the strongest regulatory challenge so far to the burgeoning market for digital token sales.

The People’s Bank of China said on its website yesterday that it had completed investigations into ICOs, and would strictly punish offerings in the future while penalising legal violations in ones already completed.

The regulator said those who had already raised money must provide refunds, though it didn’t specify how the money would be paid back to investors.

It also said digital token financing and trading platforms were prohibited from doing conversions of coins with fiat currencies. Digital tokens can’t be used as currency on the market and banks are forbidden from offering services to initial coin offerings.

“This is somewhat in step with, maybe not to the same extent, what we’re starting to see in other jurisdictions, the short story is we all know regulations are coming,” said Jehan Chu, managing partner at Kenetic Capital Ltd, which invests in and advises on token sales.

“China, due to its size and as one of the most speculative initial public offering (IPO) markets, needed to take a firmer action.”

ICOs are digital token sales that have seen unchecked growth over the past year, raising US$1.6 billion (RM6.83 billion). They have been deemed a threat to China’s financial market stability as authorities struggle to tame financing channels that sprawl beyond the traditional banking system.

Widely seen as a way to sidestep venture capital funds and investment banks, they have also increasingly captured the attention of central banks that see in the fledgling trend a threat to their reign.

Bitcoin tumbled 7.2 per cent, the most since July on a closing basis, to US$4,530.73. The ethereum cryptocurrency was down more than six per cent yesterday, according to data from Coindesk.

There were 43 ICO platforms in China as of July 18, according to a report by the National Committee of Experts on the Internet Financial Security Technology.

Sixty-five ICO projects had been completed, said the committee, raising 2.6 billion yuan (RM1.7 billion).

A cross between crowd funding and an IPO, ICOs involve the sale of virtual coins mostly based on the ethereum blockchain, similar to the technology that underpins bitcoin.