China Quakes Crypto Space with Ban of ICOs; May Still Not Stop the Space’s Boom
China continues to express its discontent with digital currencies, but its latest action has cut into the fabric of the cryptocurrency space.
Several of its financial regulators in a joint statement announced that the country is banning initial coin offerings, putting an end in its country to the lucrative means tech startups have been vigorously using to raise funds for the capital needs.
While the move, which was announced Monday, caught some off guard, for cryptocurrency veterans, it was not that much of a surprise. This is due to China’s constant regulatory moves that go against the grain when it comes to allowing for the proliferation of cryptocurrencies. In June, the bank put the market on notice that it would be reviewing how to regulate these new-fangled currencies.
This latest regulatory development, however, makes previous policy decisions concerning cryptocurrencies seem frivolous. Specifically, the People’s Bank of China, the country’s central bank, announced its investigation of ICOs had been completed, and based on its findings about the capital raising scheme, “it would strictly punish offerings in the future while penalizing legal violations in ones already completed.”
That is the sternest stance any government regulator has taken against cryptocurrencies.
Startups in China that have raised funds through ICOs must set about the task of issuing refunds to investors. How these startups should do this was not detailed.
What was made clear in the announcement are the punishments for those that ignore the ICO ban. For example, businesses that still move forward with ICOs could see their websites shut down. The same could happen to the apps used to facilitate their ICOs.
Also, the tokens in circulation are useless as the bank says they do not have a legal status equivalent to that of money and should not be circulated as proper currency.
When China sneezes…
China is known as being one of the world’s most active bitcoin communities. This has led to it also leading the pact in the explosion of ICOs. Startups are turning to ICOs to raise capital in record numbers, and they are raising a record amount of money thanks to investors who are eager to buy these new, yet unregulated coins. It is estimated that roughly $1.6 billion has been raised globally through ICOs.
So when a country, with as large of a footprint in a space as China, makes a move essentially outlawing something like this, the market takes notice. Reports in the fall of altcoins began immediately after China’s announcement.
Observers scrambled to come up with what this means other countries may do. Many immediately looked at the U.S., where the U.S. Securities and Exchange Commission has also made moves that don’t bode well for cryptocurrencies.
Bitcoin lower on the news
Panicked, knee jerk crypto investors, sent altcoins lower following the news. The immediate impact of China’s announcement on cryptocurrencies was reflected in the dip of Bitcoin. It fell to $4,350 from $4,584.
There has been tempered reaction to the China’s move. Zennon Kapron, the director of the Shanghai-based financial technology consultancy Kapron, told Reuters that he suspected China was “putting the brakes on ICOs in order to better understand the phenomenon but could ease off in the future.”
A planned ICO in the crosshairs
Of note is an ICO that had already taken steps about its upcoming ICO and China. Based in Hong Kong, Red Pulse had issued a statement prior to today’s announcement that it had made the following determination for its planned RPX sale:
“Due to stricter ICO regulations, we've had to make the difficult decision to disallow Chinese citizens from participating in our ICO,” – Red Pulse
Following the central bank’s announcement, Red Pulse issued its own, stating that it is discussing with its contacts and partners to determine what other actions need to be taken.