[Crypto News] China’s ban on ICOs and its effect on the global crypto industry

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We all know that China is essentially a dictatorship with its one party state, so it’s not surprising that their central bank has banned STOs (security token offerings). These are essentially ICOs (initial coin offerings) that are backed by tangible assets, profit or revenue from the company. But didn’t they do that last year already, you may ask? Yes they did. Then why is it of importance now again? Because this is the first time that a financial government official has acknowledged it so directly and with such force.

Historical perspective - 2017

It is said that when China sneezes the world catches a cold. Well China has rocked the global Bitcoin boat at least twice already in the past six years. In a circular published on its website back in September 2017, the People’s Bank of China announced that ICOs were officially illegal. They believed that 90% of them were outright fraudulent. In the first seven months of the year alone around 65 ICOs took place in China, raising a combined US$398 million from 105 000 investors.

However

At that time it wasn’t yet illegal for private parties to hold cryptocurrencies, though financial institutions were banned from holding or transacting in them. Hong Kong, of course, is different. On the island cryptocurrencies are considered “virtual commodities”, like gold or silver but digital. Throughout China though, crypto is particularly popular, which meant there was probably some capital outflow that the central bank didn’t like as it had the potential to destabilize the fiat currency.

The truth is that, as in Africa, corruption is huge among officials in China, who use crypto to transfer ill-gotten gains offshore. Like all of us, the Chinese love a chance to make some quick returns (which is why gambling is so big there), so they simply sidestep regulations by investing offshore in crypto and ICOs via the internet anyway.

2013

We can actually go all the way back to December 2013 to see the first global shockwave caused by China’s crackdown on crypto. On one day alone the Bitcoin price crashed by 23% after the Central bank warned financial institutions to steer clear of crypto. In other words Bitcoin involvement was so prolific in China back then already, that just one announcement of this kind resulted in the entire global cryptosphere being shaken.

The bank didn’t yet consider Bitcoin a financial threat but it was starting to worry about the effect on monetary policy. Worries of money laundering and capital flight were appearing, though not enough to ban exchanges. Still price crashed 10% in a matter of hours after the announcement. Trading volume on BTC China exchange spiked almost 3000% in less than an hour. People were probably reacting to the major FUD and selling fast.

China is well known

To be one of the most repressive financial systems in the world, which is curious because they also simultaneously have the most miners and mining rig sales by far. And the nation is big on blockchain technology. They probably just want to keep it centralised and in the power of the state – the very opposite of what Bitcoin was designed for. Certainly black swan events like these coming out of China may continue to impact our crypto industry globally, and there is nothing we can do about it really, other than set a tight stop loss I guess.

At least back then announcements only really ever made it as far as the bank’s website. Today, however, the vice head of the PBoC herself is directly announcing their concern and desire to literally kick offenders right out of Beijing if they continue with ICO activity.

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Back to the future

Jump forward to today and we have a more serious situation. Back then Chinese citizens could still trade on exchanges and own crypto, but not anymore. Even Bitmain, the world’s biggest builder of mining rigs, is unable to get the permission needed to launch their very own IPO. Regulation is still in a fluid state – as always – so Bitmain’s plan to raise US$3 billion is in serious trouble. Antminer sales provide over 90% of their revenue and they are not an exchange, yet the risk is there that this unicorn of a company might just get bundled into the broad category of digital assets.

At best China

May allow only registered investors to invest in ICOs or STOs but that goes against the very ethic of cryptocurency and blockchain, which was to free up the financial system via decentralisation. Bitmain is not the only company to suffer in China under these further restrictions. Both Canaan Creative and Ebang, producers of ASIC microprocessors and other mining gear for the rest of the world, have either been refused permission to raise the desired funds or scared away from launching their IPO.

What does mean for the cryptocurrecy world?

We shall have to wait and see.