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China ICO Ban – a deeper understanding (RECAP)

For some events, it is necessary to look back and try to learn from the history. China has a huge impact on the crypto economy. It is important to see what effect it had on the crypto markets, and apply it to possible future events (looking at U.S. Securities and Exchange Commission – SEC). This article gives a timeline of the events that happened about the Chinese ICO ban to give you a deeper understanding.

Timeline

Jan 6, 2017 – First Warnings

Could we predict an ICO ban? China’s Central Bank had warned Bitcoin exchanges back in January to comply with “relevant laws and regulations”, which is a very indistinct warning (1).

Aug 29, 2017 – Rumors

At this date, the first rumors are spread. Coindesk publishes an article with following title: ‘Reports: China’s Regulators Consider Suspending All ICOs’ (2). The article talks about an ongoing discussion to possibly suspend all ICOs executed from within China. According to Tencent Finance (3), a plan has been proposed in a meeting of the country’s Central Bank (PBoC) on August 18.

Sep 4, 2017 – Official Statement

On September 4, financial regulators order halt on token trading (4). Seven financial regulators have published a joint statement declaring that fundraising through ICOs is illegal within China (5). Reasons behind this statement:
– Investing in ICOs is labeled as speculation, and so, China wants to protect investors from potential high financial risks.
– Virtual valuta not issued by monetary authorities, do not have legal and monetary properties, and can’t be used as money in the market.
– ICOs disrupt the economic and financial order.

But, the most important line in this announcement stated that Chinese ICOs should repatriate money to the respectful owners. This line affected many large Chinese based ICOs like Qtum, Neo, OmiseGo, Binance, … We think that the Chinese government sees a decentralized economy as a major threat for their regime.

Impact on market
First drop in Bitcoin price!

Was this statement needed?
Stanislav Glukhoedov, CEO of Prosense, said that they were expecting a cleanup in the ICO market, which was hardly needed to give a message to all scam ICOs being performed (6). The ICO market can’t remain an anarchistic world, it needs a basic level of regulations, just to protect their investors. Stanislav expects that some Chinese ICOs will move their startup to countries who are more blockchain friendly like the UK or Switzerland.

Stats for nerds
Until the 18th of July 2017, 65 Chinese ICOs had raised a whopping $398 million. It was only the beginning of the ICO craze… In just 8 weeks, Chinese tech startups raised an astonishing $766 million.

Sep 5, 2017 – Reinforcement

Coindesk publishes an article containing the full translation of the Chinese statement (7). It reinforced the impact it had on the market.

A quote (7) from the translation targeting exchange services:
“It is forbidden for any exchange platform to:
– Be involved in offering exchange services between fiat currency and tokens
– Buy or sell tokens for cryptocurrencies, or act as a central party facilitating the trading of tokens for cryptocurrencies
– Provide price bidding or middleman service for the exchange of tokens for cryptocurrency”

Sep 6, 2017 – It’s real! Or not?

Chinese exchanges are moving to delist ICO-derived tokens to apply to the joint statement. To make it even worse, some exchanges started with returning money to ICO participators.

However, confusion remains. Nobody knows what to do, crypto news just exploded and even exchanges are waiting for more conclusive information. More and more people start to realize it’s just a desperate attempt from the Chinese government to disrupt the crypto economy.

Sep 12, 2017 – Ban is temporary (probably)

On the 12th of September, Coindesk publishes an article which discusses the ICO ban and makes the assumption that it’s probably a temporary ban, luckily (8)!

China is an innovative country, especially in the field of fintech. The Central Bank has even announced its interests in blockchain and AI, planning to push those new technologies in the coming 5 years (9). Yet, this is in contrast with the announced ICO ban. So, a possible reason can be that they want to slow down the ICO craze to provide supporting legal terms that can push the innovation even further when they are in place and make the adoption of blockchain technologies smoother.

We can see a severe drop in the Bitcoin market around 11-13 September.

Sep 29, 2017 – South Korean ICO Ban

However South Korea is a big player on the crypto markets, this announcement had little impact (10).

Sep 30, 2017 – Oldest Bitcoin Exchange Closed

BTCC has closed its CNY exchange to comply to the ICO ban rules. It has operated for 2,305 days! This day closed with a slightly negative quotation because of this news.

Oct 2, 2017 – China was right

An advisor of the Central Bank believes that the ICO ban was right. According to the advisor, the ICO chaos needed a big cleaning. It is important to further support blockchain development. After this temporary ban, the blockchain community will be able to identify the meaningful solutions for our society that can solve more important problems (12).

Current Status

Mid October, rumours are being spread about a possible ICO ban within Japan. Possible reason is the risk-averse and conservative mentality in China, however, Japan acknowledges Bitcoin as a legal tender. Investors are little worried because Japan is trading 63% of the world’s Bitcoin.

Conclusion

China wanted to bring the ICO craze to a halt so investors have the chance to identify the meaningful projects that can disrupt or solve existing problems. Besides that, the crypto community experienced a clean up which is a good thing. Still too many ICOs are launched, and many of them do not apply to the existing laws. For China, the ICO ban meant the creation of a better, and more supporting legal framework for ICOs.

 

Sources

(1) https://www.coindesk.com/chinas-central-bank-issues-warnings-major-bitcoin-exchanges/

(2) https://www.coindesk.com/reports-chinas-regulators-consider-suspending-icos/

(3) http://finance.qq.com/a/20170828/062914.htm

(4) https://www.coindesk.com/china-outlaws-icos-financial-regulators-order-halt-token-trading/

(5) http://www.miit.gov.cn/n1146290/n4388791/c5781140/content.html

(6) https://www.forbes.com/sites/kenrapoza/2017/09/06/chinas-ico-ban-doesnt-mean-its-giving-up-on-crypto-currencies/#140b1d367aeb

(7) https://www.coindesk.com/chinas-ico-ban-a-full-translation-of-regulator-remarks/

(8) https://www.coindesk.com/chinas-ico-ban-understandable-reasonable-probably-temporary/

(9) https://www.coindesk.com/chinas-central-bank-vows-push-blockchain-five-year-plan/

(10) https://www.coindesk.com/south-korean-regulator-issues-ico-ban/

(11) https://www.cryptocoinsnews.com/china-ico-ban-worlds-oldest-bitcoin-exchange-shuts-doors/

(12) https://www.coindesk.com/pboc-advisor-china-right-ban-icos/

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