Ethereum, Bitcoin Crash After China Proclaims Initial Coin Offerings Illegal
Ethereum and bitcoin are crashing this morning, after China confirmed its latest threat of an ICO crackdown (reported here last Monday) when the central bank said on Monday that initial coin offerings are illegal and disrupt financial markets, according to statement on China’s central bank website. The PBOC also asked all related fundraising activity to be halted instantaneously, issuing the strongest regulatory challenge so far to the controversial if surging market for digital token sales.
The crackdown was announced in a statement on the PBOC’s website in which the central bank said that it had ended investigations into ICOs, and will rigorously penalize offerings in the future while penalizing legal violations in ones already ended. The regulator said that organizations or individuals that finished initial coin offerings should come back the money raised, in budge “to protect investors’ rights and decently treat risks,” however it didn’t specify how the money would be paid back to investors.
Taking the latest SEC crackdown on Initial Coin Offerings several steps further, the PBOC also said digital token financing and trading platforms are prohibited from doing conversions of coins with fiat currencies. Digital tokens can’t be used as currency on the market and banks are barred from suggesting services to initial coin offerings, and are also also banned from suggesting pricing and information services on coins. Most importantly was the PBOC’s determination that “digital token can’t be used as currency on the market” and its warning that “China will rigorously penalize over sustained offerings and law violations in finished ones.”
The central bank’s Monday directive made no mention of cryptocurrencies such as ether or bitcoin. Bitcoin tumbled over 8%, the most since July on a closing basis, to $Four,480. Ethereum was down more than 11% Monday, to just above $310, after trading almost $400 last week.
“This is somewhat in step with, maybe not to the same extent, what we’re kicking off to see in other jurisdictions – the brief story is we all know regulations are coming,” Jehan Chu, managing fucking partner at Kenetic Capital in Hong Kong, which invests in and advises on token sales, told Bloomberg. “China, due to its size and as one of the most speculative IPO markets, needed to take a firmer act.”
As described previously, ICOs are controversial digital token sales that have seen unchecked growth over the past year, raising $1.6 billion and surpassed traditional venture capital raising pathways. They have been deemed a threat to China’s financial market stability as authorities fight 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.
While hardly the world’s thickest coin suggesting market, China accounts for about a quarter of the blockchain based capital raising activity YTD: there were at least forty three ICO platforms in China as of July Legitimate, according to a report by the National Committee of Experts on the Internet Financial Security Technology. Sixty-five ICO projects had been ended, the committee said, raising Two.6 billion yuan ($398 million).
Incidentally, just as we speculated in late July, when the SEC announced its own crackdown on initial coin offerings, a stir we deemed would be beneficial in the long run for weeding out the various criminal and ponzi schemes that have proliferated in the unregulated market, so today’s budge by China is seen by some as favorable for blockchain dynamics:
“This is a positive stir given the rapid proliferation of low quality and possibly fraudulent coin sales promising the moon,” said Emad Mostaque, London-based co-chief investment officer at Capricorn Fund Managers Ltd. “There is tremendous value in the model but we need to see more separation of high quality, ethical offerings versus those seeking to circumvent securities law for a quick buck.”
Indeed, the SEC signaled greater scrutiny of the sector when it warned that ICOs may be considered securities, however it stopped brief of suggesting a broader clampdown. The regulator reaffirmed its concentrate 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 brief span of time has also attracted cyber criminals, with an estimated ten percent of money intended for ICOs looted away by scams such as phishing this year, according to Chainalysis, a Fresh York-based hard that analyzes transactions and provides anti-money laundering software.
China will likely eventually permit token sales, according to Chu of Kenetic Capital, however only on approved platforms, and may even vet projects individually. “I think they will permit the sale of tokens in a format which they deem safe and more measured,” he said.
Eventually, for the uninitiated, here is the definitive presentation on cryptos, ICOs and tokens courtesy of Autonomous