How Chinese Investors Continue to Participate in ICOs with Workarounds? An Intriguing Story!
Since September 2017, many analysts were predicting a sharp decline in crypto investments and the overall level of enthusiasm in China – as the government was using its full-force to force the so-called “fraudulent business activities” from its country. This assumption was partially true as the state aggressively went against cryptocurrency investments, particularly ICOs, declaring them illegal, and blocking access to exchanges and portals. We’ve covered the ban in a previous post explaining the measures Chinese government took to bring down the crypto-market.
However, if the latest reports are to be believed, the ban on ICOs isn’t working well in China. According to a report published in local publication Caixin Global, ICO investors and issuers have found unique ways to evade the laws implemented last year. Now, despite the ban, investors continue to get access to the newly issued tokens (which may be speculative in nature) as the issuers have been domiciling their projects abroad.
Cryptocurrency Exchanges in Focus
While the ban on cryptocurrency and related services has impacted a wide range of market players, crypto-exchanges have been in the thick of the storm. The regulatory pressure has not subsided, and overseas cryptocurrency exchanges are currently on the Chinese radar. Regulators are eyeing potential options, including blocking the IP exchanges of the cryptocurrency exchanges trying to operate in the Chinese territory.
Sensing the potential pressure and negative implications, the issuers and investors of digital coins have come up with some alternative and comparatively less risky options.
3 Popular ICO Workarounds
Few experts compare China’s ICO ban to a parent telling their rowdy children to quiet down. In the short-term, the volume may have been turned down, but the activity is still happening in veiled attempts – like airdrops, initial miner offerings (IMO), redomiciling etc.
A lot of organizations have been able to bypass the initial coin offerings (ICO) ban by orchestrating airdrops – distribution of tokens at no cost. Here, the issuers (behind the tokens) take advantage of the marketing potential of such events, which enable them to take attraction of the community, and its most active players.
IMO or initial miner offerings is another type of workaround for crypto-enthusiasts. These deals provide investors an opportunity to back the mining of new coins – though some regulators are of the view that this has all the features of an ICO. Take the example of Xunlei IMO. The participants in the mining offer lent their computer bandwidth in exchange for the coins. It was dubbed as a qualified fundraising event.
Another innovation by ICO issuers has very much to do with the oldest trick in the book. They’re moving their corporate headquarters abroad and soliciting Chinese investors via “export for domestic sale.” In this scenario, third-party intermediaries act in proxy of Chinese locals (in the ICO project), and many times at a discount. They communicate announcements and other project info through popular messaging apps – like Telegram.
While it is yet to be seen whether China will be able to control the market or not, one thing is sure – the market is alive. A lot of people and institutions are showing great interest in the digital currencies and trying to find innovative ways to access the potential offerings.