China bans use of ICOs in fundraising

JC Torres - Sep 5, 2017
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China bans use of ICOs in fundraising

Bitcoin, the first successful cryptocurrency, promised to disrupt the way we view and use money, and disrupt it did. And like almost all disruptions, it has left some scrambling to make sense of matters, confusing not just plain folk but even and especially governments and lawmakers. Such confusion often leads to regulation that becomes unfavorable to such new systems. Like, for example, China’s new ruling that makes it illegal to use initial coin offerings or ICOs in raising funds for a startup or product.

ICOs are one of those things that wouldn’t have been possible if not for the rise of Bitcoin and its ilk. It’s like IPO (initial public offering) meets Kickstarter meets Bitcoin. Unlike an IPO, where investors/buyers gain shares in a company, an ICO only offers coins and practically nothing else. Investors buy these coins, which can later be traded against cryptocurrencies, in the hopes that they will gain value at some uncertain point in the future.

ICOs have exploded in the US, China, and Singapore, sending governments in a frenzy to understand the implications of this new way of raising money. Unsurprisingly, it was easy enough for China to lay down the law.

Because they are unregulated by nature and risky in practice, the Chinese government has found ICOs to be disruptive to the economy of the state. As such, it has banned their use in raising funds. It hasn’t, however, banned Bitcoin and cryptocurrencies at large. That is a ruling for another day.

Also unsurprisingly, shares of Bitcoins and other cryptocurrencies dropped immediately after the ruling. There is a sense of panic among those who have already bought coins from companies, which, in turn, are being required to make arrangement to return funds. Proponents, however, are confident that the ICO industry isn’t entirely in danger but that such growing pains are necessary in stabilizing this new business model.

SOURCE: The People’s Bank of China


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