China gets tough on Bitcoin and others
All initial coin offerings halted
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 ICOs.
“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 in Hong Kong, which invests in and advises on token sales.
“China, due to its size and as one of the most speculative IPO markets, needed to take a firmer action.”
ICOs are digital token sales that have seen unchecked growth over the past year, raising $1.6 billion.
They have been deemed a threat to China’s financial market stability as the 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 percent, the most since July on a closing basis, to $4 530.73. The ethereum cryptocurrency was down more than 6 percent 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, the committee said, raising 2.6 billion yuan ($398 million).
A cross between crowdfunding and an initial public offering, ICOs involve the sale of virtual coins, mostly based on the ethereum blockchain, similar to the technology that underpins Bitcoin. But unlike a traditional IPO in which buyers get shares, getting behind a startup’s ICO nets virtual tokens – like mini-cryptocurrencies – unique to the issuing company or its network. That means they grow in value only if the start-up’s business or network proves viable, attracting more people and boosting liquidity.
That’s a big if, and the profusion of untested concepts has spurred talk of a bubble. The US Securities and Exchange Commission signalled greater scrutiny of the sector when it warned that ICOs might be considered securities, though it stopped short of suggesting a broader clampdown.
The regulator reaffirmed its focus on protecting investors, however, and said issuers must register the deals with the government unless they have a valid excuse.
The vast amount of money amassed in a short span of time has also attracted cybercriminals, with an estimated 10 percent of money intended for ICOs looted away by scams such as phishing this year, according to Chainalysis, a New York-based firm that analyses transactions and provides antimoney-laundering software.
Chu of Kenetic Capital said he believes China will likely eventually allow token sales, but only on approved platforms, and may even vet projects individually.
“I think they will allow the sale of tokens in a format that they deem safe and more measured,” he said. – Bloomberg