The Strategist

Chinese central bank bans ICOs

09/04/2017 - 14:47

The People's Bank of China recognized ICO (Initial Coin Offering, a process of initial placement of tokens) as illegal and demanded the immediate cessation of all such operations. A study conducted by the bank’s experts showed that ICOs undermine financial markets and should be banned, a message posted on the People's Bank of China’s website notes.

In the future, the Chinese central bank intends to severely punish those who dare to conduct ICO, as well as fine for violations in past operations. Organizations and individuals who previously conducted ICO are instructed to return all the funds raised. The People's Bank of China also banned banks from offering ICO services, noting that digital tokens cannot be used as market currencies.

Total volume of ICO spent around the world amounted to $ 1.6 billion over the past year. According to data as of July 18 this year, there were 43 ICO-platforms in China. In total, 65 ICOs were held in China, involving 2.6 trillion yuan ($ 398 million).

The rate of bitcoin fell 5% to $ 4,397.46 during trading on Monday, according to Coindesk. The second most popular crypto currency - Ethereum - fell by 15% to $ 300.19.

Well-known investor Mark Mobius, chairman of the board of directors of Templeton Emerging Markets Group, said in an interview with Bloomberg on Monday that he sees a danger in the explosive growth of the cryptocurrency market.

States will begin to tighten requirements for these markets, as crypto-currencies can be used in illegal financing, including terrorist groups and drug dealers.

"Cryptocurrencies are starting to get out of control, and this is beginning to attract attention of countries around the world," Mobius said. "Investors are likely to switch to gold once again, asking whether it is possible to be sure of the currency’s future."

Earlier, the People's Bank of China said that bitcoin could not be considered a currency in the usual sense of the word. The NBK also announced new rules for regulation of the country's crypto-exchange exchanges.

The Chinese authorities have various reasons to try to control the market. First, Chinese citizens can use the crypto currency to withdraw their money from China. The country’s regime limits amount of foreign currency that people can buy. However, Chinese investors can buy bitcoin in China and then exchange for foreign currency in any amount.

Huge wealth, acquired as a result of corruption, can be safely stored in a place inaccessible to annoying observers. Therefore, China's central bank launched an investigation against bitcoin exchanges in February and threatened to close the exchanges, which violate rules regarding currency payments and settlements.

It is not yet clear how much money is flowing away from China through crypto currencies. Bitcoin transactions in China are not anonymous, since you must bind a Chinese bank card to your electronic account. You can transfer several thousand yuan, but large amounts will attract attention.

Despite the fact that the Chinese government can easily crush the bitcoin market, it will not do so, as it would allow producers in other countries to usurp their dominance - something very difficult to handle for the country’s central bank. 50% to 70% of the world's bitcoin operations are conducted in China.