Chinese Government Bans Initial Coin Offerings
On September 4, seven Chinese financial institutions and regulators, including the People's Bank of China, China Securities Regulatory Commission, China Banking Regulatory Commission, and China Insurance Regulatory Commission, issued a joint statement banning initial coin offerings in the country (https://www.cnbc.com/2017/09/04/chinese-icos-china-bans-fundraising-through-initial-coin-offerings-report-says.html).
The government’s announcement followed an investigation of ICOs and stated that future ICOs would be punished severely, while completed ICOs would have to return money to investors (https://www.bloomberg.com/news/articles/2017-09-04/china-central-bank-says-initial-coin-offerings-are-illegal).
Decision Rattles Chinese Crypto Community
The announcement came at a time when the ICO ecosystem in China was flourishing. A report by the National Committee of Experts on the Internet Financial Security Technology stated that that there were 43 Chinese ICO platforms as of July 18, and that sixty-five ICOs had been completed. The completed ICOs had raised 2.6 billion yuan ($498 million).
The effects of the Chinese government’s decision were felt almost immediately. Following the regulators’ statement, a number of Chinese ICO platforms, including ICOINFO and BTCC, halted their ICO-related services. At the same time, Chinese authorities shut down a local blockchain conference, “citing concerns over ICOs being used to raise funds illegally.” Additionally, Bitcoin fell 11.4 percent and Ethereum fell 16 percent the day of the announcement.
Crpyto Industry Responds to Chinese Announcement
Reactions to the government announcement were mixed, but largely saw potential long-term benefits in the ICO ban.
“This is a positive move given the rapid proliferation of low quality and possibly fraudulent coin sales promising the moon,” Emad Mostaque, co-chief investment officer at Capricorn Fund Managers Ltd., told Bloomberg. “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.”
Stanislav Glukhoedov, CEO of Prosense, believes the ban was a long time coming and may actually help the Chinese ICO ecosystem in the long run, as it was notorious for scams. "We expected toughening in ICO and crypto-currencies regulations in China for some time already. The Chinese government might consider the idea of a decentralized economy as one of the major threats to the existing regime," he told Forbes (https://www.forbes.com/sites/kenrapoza/2017/09/06/chinas-ico-ban-doesnt-mean-its-giving-up-on-crypto-currencies/#629216a07aeb). "On the other hand, maybe increased attention from governments can help clean up the ICO market from scammers and we suppose that in the near future the number of teams planning new projects through ICO mechanisms will be reduced, and those who will stay will be strong, serious companies."
Another expert, Jehan Chu of Kenetic Capital Ltd. in Hong Kong, believes the ban will be temporary and that the Chinese government will eventually allow ICOs on approved platforms or approve them on a case-by-case basis. “I think they will allow the sale of tokens in a format which they deem safe and more measured,” he told Bloomberg.
A translation of the Chinese government’s full statement can be read at Coindesk (https://www.coindesk.com/chinas-ico-ban-a-full-translation-of-regulator-remarks/).