Initial Coin Offerings Declared Illegal By PBOC, Bitcoin Tumbles

Issuing the strongest regulatory challenge so far to the burgeoning market for digital token sales, China’s central bank has asked issuing the strongest regulatory challenge so far to the burgeoning market for digital token sales and declared that initial coin offerings are illegal. Following this, bitcoin tumbled the most since July.

It will strictly punish offerings in the future while penalizing legal violations in ones already completed and had completed investigations into ICOs, the People’s Bank of China said on its website Monday. While not specifying how the money would be paid back to investors, the regulator said that those who have already raised money must provide refunds.

And doing conversions of coins with fiat currencies by digital token financing and trading platforms was also prohibited by it. Banks are forbidden from offering services to initial coin offerings and digital tokens can’t be used as currency on the market.

“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.”

Touching a low of $4,326.75, there was fall of 11.4 percent in bitcoin values, the most since July. According to data from Coindesk, the ethereum cryptocurrency was down more than 16 percent Monday.

Raising $1.6 billion, there has been unchecked growth over the past year in ICOs which are digital token sales. As authorities struggle to tame financing channels that sprawl beyond the traditional banking system, these digital currencies have been deemed a threat to China’s financial market stability. Cryptocurrencies have also increasingly captured the attention of central banks that see in the fledgling trend a threat to their reign even as they are widely seen as a way to sidestep venture capital funds and investment banks.

No mention of cryptocurrencies such as ether or bitcoin was made by the central bank’s Monday directive.

According to a report by the National Committee of Experts on the Internet Financial Security Technology, there were 43 ICO platforms in China as of July 18. Raising 2.6 billion yuan ($398 million), sixty-five ICO projects had been completed, the committee said.

“This is a positive move 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.”

Based mostly on the ethereum blockchain, similar to the technology that underpins bitcoin, ICOs involve the sale of virtual coins and is a cross between crowdfunding and an initial public offering.

But getting behind a startup’s ICO nets virtual tokens — like mini-cryptocurrencies, unlike a traditional IPO in which buyers get shares. Which means that only if the startup’s business or network proves viable, attracting more people and boosting liquidity, they grow in value.

(Adapted from Bloomberg)


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