The ICO — Initial Coin Offering — has recently become a very popular way to fund a startup, as it adheres to few rules requiring little to no regulative oversight. Companies such as Tezos and Bancor raised hundreds of millions of dollars within days by letting investors purchase their newly created cryptocurrencies (also known as tokens) with Ethereum or Bitcoin.
But now, this wild, wild west of fundraising appears to be at an end, at least in China. The People’s Bank of China has issued a notice (link in Chinese) on Monday that forbids “all types of currency issuance financing activities” of this sort.
The document claims that ICOs are teeming with “illegal fund-raising, financial fraud, pyramid schemes and other criminal activities” and claims that the government will from now on closely monitor ICOs for signs of illegal activity.
The document bans not only ICOs but also the trading of any tokens created by an ICO. It also forbids any financial institutions to aid in any ICO-related activities.
According to Chinese outlet Caixin, a specially appointed committee has created a list of 60 major ICO platforms that the Chinese financial regulators will have to inspect and report on.
The outlet claims that two major Chinese cryptocurrency exchanges stopped ICO-related activities last week, and a conference discussing blockchain was shut down.
The decision will likely cause a big ripple in the cryptocurrency community. There are currently dozens of ICOs scheduled to start in September, many of them Chinese, like Wanchain. China’s Tron already issued a statement claiming its tokens are “safe” from the new regulation, as the law firm that Tron is working with is a “supporting unit in the drafting of the Chinese 2017 regulation.” It’s unclear whether the notice above pertains to Hong Kong-based ICOs such as Red Pulse.
China blocked financial institutions from handling Bitcoin transactions in late 2013, which resulted in a sharp price drop, but the country eventually relented and Bitcoin’s popularity in China soared, with the majority of Bitcoin trades originating in the country as of January 2017.
At the time of writing, Ethereum and Bitcoin prices are down by 11% and 5.7% in the last 24 hours, respectively.
Disclosure: The author of this text owns, or has recently owned, a number of cryptocurrencies, including BTC and ETH.