ICO Ban is Just the Beginning of China’s Crackdown on Virtual Currencies

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Members of China’s Fintech sector say the central bank’s ban on initial coin offerings only marks the start of a broader crackdown by the government on crypocurrency activity.

On the afternoon of 4 September the People’s Bank of China issued the “Public Notice Concerning the Prevention of Cryptocurrency Issuance Financial Risk” (关于防范代币发行融资风险的公告) in conjunction with six other central government departments, effective prohibiting any individuals or organisations from engaging in ICO’s.

The public announcement released by PBOC called for the immediate suspension of all cryptocurrency financial activities, as well as for individuals and organisations that have raised funds via cryptocurrency issuance to make arrangements for repayments to investors.

Prior to the ban ICO transactions in China had seen flourishing popularity on the back of surging prices for virtual currencies such as Bitcoin.

Yang Dong, chairman of Renmin University’s Fintech and Internet Security Research Centre, said to Yicai that a regulatory crackdown on ICO’s had long been expected, given the central government’s repeated emphasis of late on the need to prevent systemic financial risk, as well as the problem of “bad money driving out good” when it came to cryptocurrency crowdfunding.

Speculation on imminent regulatory action with respect to ICO’s began to ferment in August after Chinese authorities made repeated reference to the need to contain financial risk, and the circulation of reports in the domestic media that a ban on funding by means of cryptocurrency issuance was now on the cards.

In Yang Dong’s estimation ICO’s themselves are simply an innovative financial tool that can be used to satisfy the financial needs of businesses by means of blockchain technology.

Yang notes, however, 90% of ICO projects in China that are touted as using blockchain technology have involved financing however, and under such circumstances the implementation of a temporary ban is a rational decision.

Sources have told Yicai that PBOC’s latest  public announcement is only marks the start of further policies directed at tightening regulation of virtual currencies in China.

One veteran ICO investor said that given the speculative frenzy surrounding ICO investments, the current ban was easy to foresee in advance.

The National Committee of Experts on Internet Financial Security Technology estimates that in the first half of 2017 a total of 43 ICO platforms were active in China, raising as much as 2.616 billion yuan via offerings.

 

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