Last Monday, the People’s Bank of China Central Office issued an announcement ordering the immediate termination of all initial coin offerings (ICOs) and other related crypto-funding activities.
Companies engaged in initial coin offerings in China are now facing a huge challenge after the country’s central bank declared ICOs as illegal. All ICO-related crowd funding activities were asked to be halted immediately.
The decision was said to be the strongest regulatory challenge the booming virtual token sales industry has faced to date. In the notice published at the People’s Bank of China website, the regulating committee stated that initial coin offerings are often exploited and used in money laundering and other scams.#InitialCoinOfferings are now banned in China! All #ICO activities terminated!Click To Tweet
“Toll coin financing refers to the financing of the main body through the token of illegal sale, circulation, to investors to raise Bitcoin, currency and other so-called “virtual currency” is essentially a non-approved illegal open financing behavior, suspected of illegal sale Tokens, illegal securities issuance and illegal fund-raising, financial fraud, pyramid schemes and other criminal activities,” the notice stated.
Furthermore, digital token financing and other cryptocurrency trading platforms are now prohibited from conducting any transaction such as converting digital coins to fiat money.
“The tokens or ‘virtual currency’ used in coinage financing are not issued by the monetary authorities, do not have legal and monetary properties such as indemnity and coercion, do not have legal status equivalent to money, and can not and should not be circulated as a currency in the market use,” China’s central bank said.
Initial Coin Offerings Deemed as Threat to China’s Financial Order
The committee behind China’s central bank decision confirmed that they have already finished their investigation regarding ICOs and claimed that they “seriously disrupted the economic and financial order” of the country.
A report from the Chinese financial news site Caixin said that the central bank prepared a list of 60 cryptocurrency exchanges that will be subjected to inspection and a report. All ICOs were stopped until the government has given further notice.
Right now, cryptocurrency tokens are banned from markets, and all banks are forbidden from offering services to initial coin offerings as reported by Bloomberg.
“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.”
What is Initial Coin Offering?
ICO involves the sales of digital tokens in an effort by startups and other companies to raise funds for the expansion or improvement of their businesses.
ICOs are also considered a cross between crowdfunding and initial public offering (IPO), typically based on the Ethereum blockchain, something pretty similar to the technology that Bitcoin uses.
Instead of giving investors stock shares in return for their investments, they are given virtual tokens which will increase in value as the company becomes profitable or if the network has been proven viable.
In July, state-run media company Xinhua reported that Chinese companies were able to raise $383 million USD in cryptocurrency from 105,000 investors for the first half of the year alone. The Chinese authorities are not particularly fond of this setup, citing that some ICOs are financial scams. The same sentiments are being echoed by other countries as well.
“ICOs are vulnerable to money laundering and terrorist financing risks due to the anonymous nature of the transactions, and the ease with which large sums of monies may be raised in a short period of time,” The Monetary Authority of Singapore (MAS) said in a statement published on its website.
Reports also claimed that China’s financial market stability is being compromised by initial coin offerings since local authorities are having a hard time taming financial channels that go beyond the traditional banking system.
While no one knows what will be China’s final stand about ICOs, Chu of Kenetic Capital still believes that the authorities will eventually allow token sales, but only on approved platforms.