Earlier this month, China shocked investors everywhere by banning both corporate and personal fund raising using ICOs (initial coin offerings) such as bitcoin, stating that such practices constitute illegal fundraising due to the current lack of regulations and increasing reports of misuse.
A statement from the People’s Bank of China informed any individuals or companies that had carried out any fundraising using ICOs to make arrangements to return the funds, said the securities and banking regulator.
ICOs are digital token sales that have seen unprecedented and unrestricted growth over the past year, raising $1.6 billion. They have been deemed a threat to China’s financial market stability as authorities cannot properly regulate these speedy developments to the traditional banking system. Widely seen as a way to circumvent traditional investment banks and venture capital funds; ICOs have also worried the central banks who see this new trend as a threat to their oligopoly.
The People’s Bank of China released a statement that they had commenced investigation proceedings into digital tokens, with strict repercussions for anyone going forward found to be collecting virtual currencies as well as carrying out legal violations for transactions already completed, yet to be refunded.
There are also several other noteworthy restrictions for Chinese banks & trading platforms:
Individuals who already raised funds in the form of ICOs must return all payments to avoid litigation; without stipulating how this would work with investors funds.
Trading platforms are banned from doing exchanging digital coins with approved currencies.
Digital tokens cannot be used as a legitimate currency on the market and banks are prohibited from offering any services related to ICOs.
This is to some extent in line with what other jurisdictions are starting to consider; in short, further global regulations will be put in place, starting with Hong Kong, which currently still uses ICOs for investment and trading. Due to Chinas population and being largely involved with Initial public offering (IPO) markets, this is why such rapid and firm action has to take place.
Since the announcement, Bitcoins value plummeted by 12%, the most since July 2017.