Cryptocurrency chaos as China cracks down on ICOs
This is not unlike the dotcom bubble of 2000.There are a lot of companies raising a lot of money for not very good ideas, and these will eventually be weeded out. But even from the big dotcom bust, you still have gems.
SHANGHAI/BEIJING: 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, about-turns 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.
The boom has fuelled a jump in the value of cryptocurrencies, but raised fears of a potential bubble.
“This is not unlike the dotcom bubble of 2000,” said a partner at a venture capital fund in Shanghai, who didn’t want to be named because of the issue’s sensitivity.
“There are a lot of companies raising a lot of money for not very good ideas, and these will eventually be weeded out. But even from the big dotcom bust, you still have gems.”
“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,” the partner said.
Investors in China contributed up to 2.6 billion yuan (US$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.
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standing room-only presentations at 5-star hotels drew a diverse crowd, including grandmothers – a likely tipping point for regulators.
The hype and subsequent crackdown came as China focuses on economic and social stability ahead of next month’s congress of the Communist Party, a once-in-five-years event.
Beijing is also waging a broader campaign against fraudulent fundraising and speculative investment, which analysts attribute to China’s underdeveloped financial regulation and lack of legitimate investment options.
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 40minute 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.