Insights & Analyses

China bans initial coin offerings, plummeting prices of bitcoin & ethereum

September 4, 2017

As governments around the world grow wary of initial coin offerings, the Chinese government on Monday went much further, making the popular fundraising tactic for cryptocurrencies illegal.

The news sent cryptocurrencies downward, with bitcoin dropping more than 8 percent during trading, while rival ethereum fell more than 16 percent.

The People’s Bank of China announced on Monday that 90 percent of ICOs launched in the country have been fraudulent. It said that individuals and organizations who completed ICOs should return any funds collected.

“Any form of fundraising through digital currency issuance should be halted immediately,” they said. “Those schemes which are already launched should repatriate funds to investors.”

The decision caught investors off guard. Elsewhere in the world, governments have taken a more cautious approach — the U.S. Securities and Exchange Commission, for example, warned in July that some ICOs should be regulated in a manner similar to other securities.

The growth and popularity of ICOs has presented challenges for regulators, who seek to mitigate unnecessary risks. Popular ICOs have brought in hundreds of millions of dollars with little to no oversight.

Cryptocompare has found that, to date, ICOs have raised $2.32 billion, according to Reuters. Almost all of that — $2.16 billion — was raised in 2017 alone.

ICOs rely on crowdfunding via cryptocurrency, selling investors a right of ownership or royalties to a project. When buying into an ICO, investors buy coins of the company, in hopes that they will appreciate in value if and when the business is successful.