Emscomm on China banning ICO
By creating and issuing digital tokens, entrepreneurs can raise large sums quickly — sometimes hundreds of millions of dollars in minutes — with little or no regulatory oversight. But unlike traditional fundraising, token holders are generally not given any share in the particular project, nor any security.
For the buyer, therefore, the main reason for buying these highly risky tokens is often simply a bet that their value will rise. Once the tokens have been issued they can be traded against other cryptocurrencies such as bitcoin, the first successful digital-only currency.
The popularity of coin offerings has surged in China this year.
In July, the state news agency Xinhua cited data from a government organization that monitors online financial activity to report that there had been 65 ICOs so far during the year raising a combined 2.62 billion yuan ($394.6 million) from 105,000 individuals in the country.
Oliver Bussman, previously chief innovation officer at UBS and now president of the Switzerland-based “Crypto Valley Association” that promotes blockchain-based technology, said Chinese authorities had to be especially vigilant about protecting consumers because of the lack of financial advice in the country, compared with Europe or North America.
Reaction to the ban was swift online.
Here are 7 possible reasons why China banned ICO
1. ICOs are out of control
The ICO craze has gotten out of hand. In the first half of the year, ICOs raised more than $1 billion for blockchain-based projects—many of which consist of little more than a white paper and some marketing spiel about disrupting various industries with new kind of Internet money. Celebrities ranging from pro boxer Floyd Mayweather to hotel heiress Paris Hilton have been endorsing the stuff. Without a counterbalance, the sector would continue to grow unchecked; China decided to put the kibosh on the funding mechanism before the space could get any more bonkers.
2. Many ICOs are scams
It doesn’t take a financial whiz to understand that many ICOs operate like classic pump and dump scams or pyramid schemes. Get people to throw money behind an asset or opportunity they don’t understand all that well; hope the price of the mostly worthless junk inflates; cash out. There are too many hucksters out there simply looking to make a quick buck.
3. The mania poses a danger to retail investors.
When the crypto bubble bursts who is going to get hurt? Joe investor, that’s who. By clamping down on the ICO sector, China may be warding off bigger financial troubles for consumers down the line. There are securities laws for a reason.
4. China is a hotbed for the action (scams and all)
China is an epicenter for cryptocurrency mania. In the first half of the year, China-based ICOs raised about $400 million through 65 offerings with more than 100,000 investors, according to a report from the National Internet Finance Association of China. That puts the country in a particularly precarious position if and when the crypto boom comes crashing down.
5. China wants its own coin
We’ve heard rumors that China is looking to mint its own national cryptocurrency. If the country succeeds it will have greater control over that platform than the present options (Bitcoin, Ethereum, etc.). Regulators may be clearing the way for this this eventual debut.
6. ICOs threaten incumbents
China likes to pick its business winners. In general, ventures originating outside the country tend to fail for lack of state support. In their very conception, ICOs are designed to threaten or circumvent traditional power players—to get around regulatory obstacles, to provide a new way to access venture capital, to build projects or protocols that might one day compete with incumbent businesses and provide censorship-resistant alternatives. A lack of state control means that government views the whole lot of ICOs warily.
7. China wants a cool-off period
By considering all ICOs illegal rather than differentiating ones that trade in unregistered securities from ones that act more like tokens to use certain decentralized apps, China is taking a heavy-handed approach. (In the United States, the SEC appears to be gearing up for a distinction between the two types.) China may simply be trying to cool off the crypto mania with a strict, if temporary, edict. There’s no knowing whether this ban is forever, or whether it has been prompted by the present craze.