China’s central bank officially banned several organizations — as well as individuals — from raising funds through the use of Initial Coin Offerings, or commonly referred to as ICOs.
ICOs have proven to be quite rewarding for many cryptocurrency entrepreneurs in China and even globally. It allowed them to raise large amounts of money rapidly by selling “digital tokens.” However, the country’s central bank puts this practice to rest as it constitutes unregulated and illegal fundraising, Reuters reported.
What ICOs basically do is it acts as a crowdfunding for people who want to sell new crypto tokens to interested investors, which are commonly based on ethereum, one of the two leading cryptocurrencies alongside bitcoin.
Those who have completed ICO fundraising, whether it be from individuals or corporations, are now being urged by China’s central bank to return the funds they acquired.
A report from financial news site, Caixin, noted that a list of about 60 major ICOs is now being inspected by financial regulatory bodies in China. Aside from being unregulated, these platforms may also be involved in scams and pyramiding schemes, CNBC reported.
Director of the Shanghai-based financial technology consultancy Kapronasia, Zennon Kapron, believes that this ban on ICOs in China will be temporary. He also believes the government is still looking to better understand this phenomenon as well as for ways to regulate it.
“Regulators globally are struggling to understand what ICOs are, what the risks are, and how to ring-fence and regulate them. China, in many ways, is no different than the U.S. or Singapore in saying, ok, we need to push back on these for now until we figure out how to deal with them… I think it will be slightly a temporary measure,” Kapron said.
After China’s announcement, Bitcoin value plunged more than 8% to $4,309. Ethereum went down to $295, decreasing the market cap by $6 billion in a single day. However, as of this writing, Bitcoin has gone back up to $4,494.97, according to Coinbase.
State news agency, Xinhua, reported in July that the popularity of ICOs in China hit a massive surge for 2017. According to its report, which cited data from an unnamed government organization, 65 ICOs had been recorded so far for the current year with a combined amount of 2.62 billion yuan (around $394.6 million) from 105,000 individuals in China.