So the Public Bank of China just issued a statement regarding the recent announcement on the ban of ICOs. So this official announcement should come at no surprise to anyone.
However, it does look like it’s already creating yet another round of panic in the market. So before the panic escalates, let’s just breakdown the announcement.
This is my interpretation of it. Do not take this as advice, do not especially take this as financial advice. At the end of the day, use your own judgement.
Recently, a large number of fundraising activities through issuing tokens including Initial Coin Offering (ICO) have taken place in China, giving rise to speculation and inviting suspicion of illegal financial activities. These activities have disrupted the economic and financial order
Nothing new here. Obviously the exponential growth in initial coin offerings has occurred. Without an understanding of the impacts of these ICOs and fund raising activities, it is creating red flags around the globe. Activities such as ICOs do easily allow for manipulation, fraud, pyramid schemes. No doubt you would have heard of at least a handful in the recent months. Anything that can potentially create economic instability would and should be frowned upon.
To implement the spirit of the National Financial Work Conference, protect the legitimate rights and interests of investors and manage financial risks, and in accordance with Law of the People’s Republic of China on the People’s Bank of China, Law of the People’s Republic of China on Commercial Banks, Law of the People’s Republic of China on Securities, Law of the People’s Republic of China on Cyber Security, Regulation of the People’s Republic of China on Telecommunication, Measures for Banning Illegal Financial Institutions and Illegal Financial Business and Activities, and other laws and regulations,
It should be in the genuine interest of any government to protect their citizens from unlawful practice. It should be no different in the case of ICOs or the trading of tokens.
I. The Essential Attributes of Fundraising Through Coin Offering
Financing through coin offerings refer to financing bodies raising virtual currencies such as Bitcoin or Ethereum from investors through illegal sales and circulation of crypto currency or tokens. Such offerings, in essence, are unauthorized and illegal public fundraising and are suspected of involving in criminal activities such as illegal selling of tokens, illegal issuance of securities, illegal fundraising, financial fraud and pyramid schemes. The competent authorities will closely monitor the related developments, strengthen coordination with the judicial departments and local governments, strictly enforce the law and work based on the current mechanism, and resolutely clamp down on market irregularities. Any suspected crimes, once identified, will be transferred to judicial department.
This does not imply a ban on Bitcoin, or Ethereum, as some forums have suggested. However, fundraising (peforming an ICO) using these assets is deemed as unauthorised. Therefore ICOs can be suspected of involving in criminal activities. They define criminal activities as: illegal selling of tokens, illegal issuance of securities, illegal fundraising, financial fraud and pyramid schemes.
The token or “virtual currency” used in coin offerings are not issued by the monetary authority. Such currency does not have characteristics of money such as legal tender status and mandatory use, has no legal status equivalent to money, and cannot be circulated or used as currency in the market.
Most countries do not so far recognize Bitcoin, Ethereum, or any other cryptocurrency as a legal tender (actual currency). They do classify them as assets or property. Any legal or tax implication would therefore be similar to how any other asset or property is taxed in that country.
II. No Organizations or Individuals Shall Engage in Illegal Fundraising through Coin Offering
From the date of release of this Notice, fundraising through coin offering shall be banned immediately. Any individuals or organizations that have completed fundraising through coin offering shall make arrangements to return the funds raised, and to ensure that the legitimate rights and interests of the investors are protected and the risks involved are properly managed. The government departments concerned will strictly investigate and address the coin offering activities that have continued despite the ban and the illegal activities in the projects that had completed fundraising.
This right here states that all Initial Coin Offering activities are now banned. Any entity that has completed an ICO must return the funds raised. There is clearly no ambiguity here. China is banning ICOs and ICO related activities.
III. Management of Related Platforms Shall be Strengthened
From the date of release of this Notice, any so-called platform that provide trading and exchange services for coin offering shall not engage in exchange businesses between legal tender and token or “virtual currency”; or engage in proprietary trading activities or trading as an central counterparty of tokens or “virtual currencies”; or provide pricing services or act as information intermediary for tokens or “virtual currencies”.
As for the trading platforms with activities that have violated laws or regulations, the financial regulatory authorities will notify the administrative department in charge of telecommunications to adopt measures such as shutting down its website platform and mobile APP, notify the administrative departments in charge of cyberspace to remove its mobile APP from the APP store, and notify the business administration department to revoke its business license.
They are not stipulating that all crypto exchanges, or that the ban is applicable on crypto-to-crypto exchanges. This only applies to any entity that currently provide trading services or exchange services for coin offerings.
- No entity can provide trade or exchange services between fiat currency and any other token
- No entity can engage in trading activities of tokens
- No entity can trade as a central conterparty of tokens
- No entity may price tokens or even provide informaiton on these tokens
Any entity that does any of the above will have its website and APP removed. The business administration department will be notified to have the entity’s business license removed.
IV Financial Institutions and Non-Bank Payment Institutions Shall Not Conduct Businesses Related to Coin Offering Fundraising and Trading
Financial institutions and non-bank payment institutions shall not directly or indirectly provide product or services such as account opening, registration, trading, clearing and settlement for fundraising through coin offering/“virtual currencies”; or insure businesses related to tokens/“virtual currencies” or include tokens/“virtual currencies” in the insurance coverage. Once clues of illegal coin offering fundraising and trading is identified, financial institutions and non-bank payment institutions shall promptly report to the departments concerned.
No financial institution or payment institutions may conduct business related to ICO fundraising. I don’t see this as a ban on crypto exchanges. What they are stating here is that no entity may provide services that will allow investors to buy tokens issued through an ICO. This may also imply that exchanges may not allow the trade of tokens that were sold as part of an ICO. They are banned from selling or allowing trading activities for tokens initially sold through ICOs.
V. The Public Need to Stay Aware of the Risks of Coin Offering Fundraising and Trading
There are multiple risks in coin offering fundraising and trading, including risk of false asset, risk of operation failure, risk of speculation, and etc. The investors shall take investment risks on their own and be cautious of frauds and scams.
The public shall be aware of the risks and learn to identify the illegal financial activities in the name of “currency” (“bi” in Chinese), and report clues of illegal activities in a timely manner.
Well that’s quite true. Can’t question that.
So the biggest take away here is:
- There is nothing new that we haven’t heard in the previous round of news from China
- It is not evident that the ban is permanent or temporary- hard to say at this stage
There is no ban in Bitcoin, Ethereum, any existing Cryptocurrency, virtual token, or digital asset
- There is no ban on crypto-to-crypto exchange as long as it is not related to ICOs
There is a clear ban on ICOs
There is a clear ban on any entity that allows fundraising through ICOs
There is a ban on exchanges allowing the conversion of fiat to token for the purpose of completing an ICO
In short, ICOs are banned, anything to do with ICOs are banned. I don’t see how this is a bad thing for such a large country. These are steps towards a regulated environment. I still hope that the ban is temporary. Legitimate ICOs are an innovation, and therefore countries need to be able to adopt the fundraising method. However it needs to be fixed. And hopefully this is the right step towards doing that.
At the end of the day, regulation will happen, regardless of if we like it or not. But if you didn’t think it would happen you aren’t aware of what the risks with any ICO are. Leave your thoughts below.